State of Arizona
Office
of the
Auditor General
PERFORMANCE AUDIT
Report to the Arizona Legislature
By Debra K. Davenport
Auditor General
November 1999
Report No. 99-21
DEPARTMENT
OF
ENVIRONMENTAL
QUALITY
Aquifer Protection Permit Program,
Water Quality Assurance
Revolving Fund Program, and
Underground Storage
Tank Program
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee
composed of five senators and five representatives. His mission is to provide independent and impar-tial
information and specific recommendations to improve the operations of state and local government
entities. To this end, he provides financial audits and accounting services to the state and political
subdivisions and performance audits of state agencies and the programs they administer.
The Joint Legislative Audit Committee
Senator Tom Smith, Chairman
Representative Roberta Voss, Vice-Chairman
Senator Keith Bee Representative Robert Burns
Senator Herb Guenther Representative Ken Cheuvront
Senator Darden Hamilton Representative Andy Nichols
Senator Pete Rios Representative Barry Wong
Senator Brenda Burns Representative Jeff Groscost
(ex-officio) (ex-officio)
Audit Staff
Melanie Chesney—Manager
and Contact Person (602) 553-0333
Natalie Coombs—Audit Senior
Jay De Pree—Staff
Ryan Curtis—Staff
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410
Phoenix, AZ 85018
(602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.auditorgen.state.az.us
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
November 17, 1999
Members of the Legislature
The Honorable Jane Dee Hull, Governor
Ms. Jaqueline E. Schafer, Director
Arizona Department of Environmental Quality
Transmitted herewith is a report of the Auditor General, A Performance Audit of the
Department of Environmental Quality (ADEQ): the Aquifer Protection Permit program,
the Water Quality Assurance Revolving Fund program, and the Underground Storage
Tank program. This audit was conducted pursuant to Laws 1998, Chapter 298, §17,
and under the authority vested in the Auditor General by Arizona Revised Statutes
(A.R.S.) §41-1279.03.
This report addresses issues related to three Arizona Department of Environmental
Quality (ADEQ) programs that are responsible for protecting the State’s critical water
resources from contamination. Specifically, a number of problems were identified with
the Aquifer Protection Permit program, which is designed to help prevent groundwater
contamination from occurring. Based on its historical performance, the program is
unlikely to meet statutory permit processing deadlines, and it has not focused its
attention on ensuring that high-risk facilities are among the first facilities to obtain
required permits. In addition, ADEQ’s ability to manage the program is limited
because data is inaccurate and incomplete. Further, although the amount businesses
can be required to pay for aquifer protection permit processing is capped in statute,
ADEQ has inappropriately solicited additional permit processing monies from some
businesses it regulates.
This report also discusses recent changes to the Water Quality Assurance Revolving
Fund (WQARF) program, including some of the challenges ADEQ now faces with the
shift from a joint to a proportional liability standard. Finally, the report provides
November 17, 1999
Page -2-
information on the progress ADEQ has made toward implementing recommendations
made in a 1998 performance audit of the Underground Storage Tank program (Auditor
General Report No. 98-4).
As outlined in its response, ADEQ does not agree with all of our findings, but has
agreed to implement all of our recommendations. In particular, ADEQ disagrees with
our conclusion that it will not meet statutory deadlines for issuing APP permits.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on November 18, 1999.
Sincerely,
Debbie Davenport
Auditor General
Enclosure
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OFFICE OF THE AUDITOR GENERAL
SUMMARY
The Office of the Auditor General has conducted a performance
audit of three programs within the Department of Environ-mental
Quality (ADEQ): the Aquifer Protection Permit program,
the Water Quality Assurance Revolving Fund program, and the
Underground Storage Tank program. The audit was conducted
pursuant to Laws 1998, Chapter 298, §17, and under the author-ity
vested in the Auditor General by Arizona Revised Statutes
(A.R.S.) §41-1279.03.
The three programs share a common goal of protecting the
State’s critical water resources from contamination. The Aquifer
Protection Permit program helps ensure that contamination does
not reach the State’s groundwater by regulating discharges from
facilities such as mines, industrial facilities, and wastewater
treatment plants. If hazardous substances threaten to, or actually
do, contaminate groundwater, the Water Quality Assurance
Revolving Fund program oversees investigation and cleanup
activities and attempts to recover the associated costs from pol-luters.
The Underground Storage Tank program regulates un-derground
storage tanks and, when those tanks leak and con-taminate
soil and groundwater, it oversees and helps to fund
various cleanup activities.
The audit identified four problems affecting ADEQ’s ability to
manage the Aquifer Protection Permit program. Under this pro-gram,
ADEQ issues permits that govern the release of potential
contaminants from mines and other facilities, such as wastewater
treatment plants. The four problems involve:
1) The program’s likely inability to meet statutory deadlines for
issuing permits,
2) The need to ensure high-risk facilities obtain required aquifer
protection permits,
Aquifer Protection
Permit Program
All three programs share
a goal of protecting Ari-zona’s
water.
Summary
ii
OFFICE OF THE AUDITOR GENERAL
3) Incomplete and inaccurate data in the information system for
administering the program, and
4) The need to ensure the program has adequate funding.
Compliance with Statutory APP
Processing Deadlines Is Doubtful
(See pages 9 through 13)
ADEQ’s ability to meet statutory deadlines for processing aqui-fer
protection permits is doubtful. Current statutory deadlines
call for aquifer protection permits to be issued to non-mining
facilities by 2004 and to mining facilities by 2006. To meet the
2004 deadline, the program would need to nearly double the
number of permits it issues each year. Because the program con-tinues
to have persistent staffing and training problems, such a
pace is unlikely. Auditor General staff first identified problems
with turnover and vacancies in 1993. Management has not es-tablished
a formal training process to help ensure that new and
existing staff have the knowledge needed to make consistent and
timely decisions.
If it cannot issue permits at a faster pace, ADEQ’s attention may
be diverted primarily to addressing new permits rather than
those it has already received. A recent law requires state agencies
to refund fees and pay penalties to the General Fund if they can-not
meet processing deadlines for applications received after
August 13, 1999. Because of these penalties, ADEQ may choose
to focus on processing newer applications first and may further
delay processing older applications that are not subject to penal-ties.
ADEQ Has Not Focused Aquifer Protection
Permit Efforts on High-Risk Facilities
(See pages 15 through 17)
ADEQ has not ensured that facilities posing the highest risk to
the environment were the first to be required to obtain aquifer
protection permits. Beginning in 1992, the law directed ADEQ to
establish risk-based priorities for all known facilities that may be
releasing pollutants into the groundwater. To give its staff more
To meet statutory dead-lines,
the Program will
need to double its perform-ance.
Summary
iii
OFFICE OF THE AUDITOR GENERAL
experience before tackling all the high-risk facilities, ADEQ
elected to use an approach that focused on a combination of
low-, medium-, and high-priority facilities. However, slow prog-ress
in issuing permits has meant that facilities with some of the
most serious potential for groundwater pollution may have been
allowed to forgo upgrading pollution control efforts for years.
ADEQ has also not taken action against facilities that have ig-nored
the requirement to submit permit applications. Nearly 40
percent of all facilities required to submit permit applications
since 1995 have failed to do so.
Incomplete and Inaccurate
Data Limits ADEQ’s Ability to
Manage Its Aquifer Protection
Permit Program
(See pages 19 through 24)
Numerous problems with computerized data need to be cor-rected
to enable ADEQ to effectively manage the Aquifer Pro-tection
Permit program. Currently, the program’s formal track-ing
database does not provide accurate and complete informa-tion
about such basic things as the number of permits issued, the
time it takes to issue permits, and the status of permits in proc-ess.
This missing information affects ADEQ’s ability to deter-mine
if processing times are met, identify where bottlenecks are
occurring, and ensure that all required fees are collected. To en-sure
that these problems do not continue to impact the program
and the Department, ADEQ needs to make necessary corrections
and establish controls for the data systems it is currently devel-oping
or upgrading.
ADEQ Needs to Take Appropriate
Steps to Help Ensure APP Program
Is Adequately Funded
(See pages 25 through 30)
ADEQ has taken an inappropriate action to minimize funding
problems in its Water Permits Section, which is responsible for
issuing aquifer protection permits. State law requires ADEQ to
set fees that are reasonably related to the cost of processing
ADEQ has not taken
action against facilities that
have not applied for per-mits.
Summary
iv
OFFICE OF THE AUDITOR GENERAL
permits, but it also establishes a maximum amount the appli-cants
can be required to pay. Anticipating a funding shortfall,
ADEQ, in fiscal year 1998, solicited additional permit-processing
monies from some applicants above the amount established in
statute. Two applicants have signed agreements that make
ADEQ eligible to receive up to $161,700 in additional payments
to continue work on the permits. Although state law does not
preclude ADEQ from seeking higher fees to cover its costs, such
agreements have the appearance of compromising ADEQ’s in-dependence
and could result in inequitable treatment of appli-cants
and permit holders.
Rather than soliciting additional monies from businesses that the
Department regulates, ADEQ should pursue more appropriate
means of ensuring that the program is adequately funded. Spe-cifically,
ADEQ should work to change internal practices that
may adversely affect its revenue flow. ADEQ could also study
the impact of the fee caps, and once reasonable costs are identi-fied,
make recommendations to the Legislature about the statu-tory
fee caps, if necessary.
Change in Liability Approach Presents
Unique Challenges to WQARF Program
(See pages 39 through 45)
Arizona’s newly restructured Water Quality Assurance Revolv-ing
Fund, which is the State’s program designated to clean up
historically contaminated groundwater, is still in the process of
adjusting to a significant restructuring the Legislature made in
1997. Under this restructuring, ADEQ can no longer identify a
single party who contributed to pollution at a site and hold that
party responsible. It must now use its best efforts to identify all
contributing parties, allocate responsibility proportionately
among them, and determine each party’s ability to pay. This new
liability standard, known as proportional liability, is considered
more equitable because one party is not held solely responsible
for all cleanup costs unless it is solely responsible for the con-tamination.
As part of the restructuring, the Legislature also
Water Quality Assurance
Revolving Fund Program
ADEQ solicited addi-tional
payments from
applicants.
Summary
v
OFFICE OF THE AUDITOR GENERAL
provided a more stable source of funding. Past cleanup efforts
had been hampered by uncertain funding.
It is too early to determine the full effect of the changes to Ari-zona’s
program. However, implementing the proportional li-ability
standard poses some challenges. For example, increased
time and effort is needed to identify multiple parties who may
have polluted a site and to determine how much of the cleanup
costs each party should bear. In addition, if parties are unable to
pay their fair share, the State is now responsible for paying for
these “orphan” shares. These challenges are unique to Arizona’s
program in that cleanup programs operated by the federal gov-ernment
and by other states have less complex requirements for
identifying parties responsible for contamination and recovering
cleanup costs. Because the new procedures have been in place
for a relatively short time, not enough progress has been made to
assess their full impact.
Continued Efforts Needed to Address
Efficiency and Funding Issues in the
Underground Storage Tank Program
(See pages 53 through 58)
The Underground Storage Tank Program has made progress in
improving its performance since a 1998 Auditor General per-formance
audit, but continued work is needed. ADEQ has be-come
more efficient in handling leaking underground storage
tank cases, reducing a substantial backlog of site characterization
plans and closure requests that required ADEQ approval. How-ever,
improvements are still needed in the program’s computer
database for tracking leaking underground tank sites.
Action is also needed to address the lack of funding available for
approved cleanups. At the time of the 1998 audit, ADEQ had $48
million in approved but unpaid claims. This number had
climbed to more than $55 million by the end of fiscal year 1999.
In addition, at the end of fiscal year 1999 there were also 541
pending claims requesting a total of more than $22 million. The
Underground Storage
Tank Program
The amount of unpaid
claims has grown to $55
million.
It is too early to evaluate
the impact of propor-tional
liability.
Summary
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OFFICE OF THE AUDITOR GENERAL
1998 report analyzed several ways to address the issue: raising
revenues, limiting claims, eliminating the Fund, and finding
ways to reduce the Fund’s administrative expenses. Since the
1998 report, some changes and developments have occurred, but
the basic situation remains much the same.
A final area in which progress has been slow is in establishing
risk-based corrective action rules that would allow efforts to
clean up leaking underground storage tanks to focus on those
sites posing the greatest danger to the public, although the Leg-islature
has required ADEQ to establish such rules by January
2000. ADEQ recently proposed these rules and anticipates a May
2000 effective date.
Table of Contents
vii
OFFICE OF THE AUDITOR GENERAL
TABLE OF CONTENTS
Page
Introduction and Background ..................... 1
Introduction and Background ..................... 7
Finding I: Compliance with Statutory
APP Processing Deadlines
Is Doubtful................................................ 9
Permit Processing Affected
by Persistent Staffing and
Training Problems .................................................... 10
ADEQ Is Unlikely to
Meet Extended Permit
Processing Deadlines................................................ 11
Ability to Meet Deadline
May Be Further Impacted
by New Permit Processing
Requirements............................................................ 12
Recommendations .................................................... 13
Finding II: ADEQ Has Not Focused
Aquifer Protection Permit
Efforts on High-Risk Facilities ................ 15
ADEQ Did Not Focus Permitting
Efforts on High-Risk Facilities First ......................... 15
ADEQ Has Not Taken Action
Against Nonresponsive Facilities ............................ 16
Recommendation..................................................... 17
Aquifer Protection
Permit Program
Table of Contents
viii
OFFICE OF THE AUDITOR GENERAL
TABLE OF CONTENTS (Cont’d)
Page
Finding III: Incomplete and Inaccurate
Data Limits ADEQ’s Ability
to Manage Its Aquifer
Protection Permit Program ..................... 19
Basic Information About APP
Workload and Processing Times
Is Unavailable, Inaccurate ........................................ 19
Missing Data Affects
Ability to Manage Program ..................................... 21
Efforts Needed to Prevent
Future Data Problems .............................................. 22
Recommendations .................................................... 24
Finding IV: ADEQ Needs To Take
Appropriate Steps to Help
Ensure APP Program
Is Adequately Funded.............................. 25
Department Sought Additional
Monies from Some Applicants ................................ 25
ADEQ Should Use More
Appropriate Means of
Covering Its Costs..................................................... 27
Recommendations .................................................... 30
Aquifer Protection
Permit Program (Cont’d)
Table of Contents
ix
OFFICE OF THE AUDITOR GENERAL
TABLE OF CONTENTS (Cont’d)
Page
Introduction and Background ..................... 33
Finding I: Change in Liability
Approach Presents Unique
Challenges to WQARF Program............. 39
WQARF Restructured
in 1997 ....................................................................... 39
Proportional Liability Poses
New Challenges to WQARF.................................... 40
Additional Time and
Resources Required .................................................. 41
Other States’ Liability Standards
Differ from Arizona’s ............................................... 44
Too Early to Judge
Full Effect of Changes............................................... 45
Introduction and Background ..................... 49
Finding I: Continued Efforts Needed
to Address Efficiency and Funding
Issues in the Underground Storage
Tank Program........................................... 53
1998 Performance Audit Identified
Concerns in Several Areas........................................ 53
Water Quality Assurance
Revolving Fund Program
Underground Storage
Tank Program
Table of Contents
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OFFICE OF THE AUDITOR GENERAL
TABLE OF CONTENTS (Cont’d)
Page
Finding I: (Concl’d)
Program Has Increased
Efficiency, but Management
Information Needs Attention................................... 54
Action Still Needed to Address
State Assurance Fund Problems.............................. 55
ADEQ Should Continue to
Implement Risk-Based Approach............................ 56
Recommendations .................................................... 58
Figures
Figure 1 Designated Contaminated Sites ................. 34
Figure 2 Arizona Department of Environmental Quality
Restructured WQARF Process for Cleaning
Up Contaminated Sites and Current Status
of Sites in Process
As of August 15, 1999.................................. 36
Underground Storage
Tank Program (Concl’d)
Table of Contents
xi
OFFICE OF THE AUDITOR GENERAL
TABLE OF CONTENTS (Concl’d)
Page
Tables
Table 1 Arizona Department of Environmental Quality
Water Quality Assurance Revolving Fund
Statement of Revenues, Expenditures, and
Changes in Fund Balance
Years Ended June 30, 1997, 1998, and 1999
(Unaudited)................................................... 38
Table 2 Arizona Department of Environmental Quality
State Assurance Fund
Statement of Revenues, Expenditures, and
Changes in Fund Balance
Years Ended June 30, 1997, 1998, and 1999
(Unaudited)................................................... 50
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OFFICE OF THE AUDITOR GENERAL
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1
OFFICE OF THE AUDITOR GENERAL
Common Goal of
APP, WQARF, and
UST:
Strive to protect
water resources
INTRODUCTION AND BACKGROUND
The Office of the Auditor General has conducted a performance
audit of three programs within the Department of Environ-mental
Quality (ADEQ): the Aquifer Protection Permit (APP)
program, the Water Quality Assurance Revolving Fund
(WQARF) program, and the Underground Storage Tank (UST)
program. The audit was conducted pursuant to Laws 1998,
Chapter 298, §17, and under the authority vested in the Auditor
General by Arizona Revised Statutes (A.R.S.) §41-1279.03.
The APP, WQARF, and UST programs
all share the common goal of protecting
the State’s critical water resources from
contamination. The APP program is
designed to help prevent pollutants from
reaching the soil and groundwater;
however, if contamination does occur,
both WQARF and UST are responsible for overseeing cleanup
efforts. The APP program serves as the cornerstone of the State’s
groundwater protection efforts by regulating facilities, such as
mines and wastewater treatment plants, to ensure that any pol-lutants
they discharge are minimized. WQARF, on the other
hand, is responsible for cleaning up hazardous substances that
were handled or disposed of improperly and contaminated or
threaten to contaminate groundwater. It also works to recover
the associated cleanup costs from polluters. Similarly, the UST
program regulates underground storage tanks and, when those
tanks leak, it oversees and helps to fund various cleanup activi-ties.
Audit Scope, Methodology,
and Limitations
This special audit presents recommendations in five areas:
n Resolving staffing and training problems that hamper the
Department’s ability to meet statutory deadlines for proc-essing
permits.
Introduction and Background
2
OFFICE OF THE AUDITOR GENERAL
n Focusing permit efforts on those facilities with the highest
potential for contaminating the groundwater.
n Improving the management information systems for the
Aquifer Protection Permit program.
n Developing a reasonable and appropriate course of action for
minimizing funding shortfalls.
n Improving various aspects of the UST program’s manage-ment.
In addition, the report discusses the WQARF program’s progress
since it was restructured in 1997. The discussion of this issue
does not include recommendations because not enough time has
elapsed to evaluate the full effect of the changes.
Throughout the assignment, Auditor General staff encountered a
number of limitations in obtaining information through data
analysis and interviews about the programs’ performance and
progress.
n Computerized data for aquifer protection permits is in-complete—
Computerized data about permits is recorded in
both the formal Water Permits and Certifications Tracking
Database as well as in separate informal spreadsheets main-tained
by individual staff. Staff who created the spreadsheets
indicated that the spreadsheets may not contain information
about all permits; however, auditors found that information
in the spreadsheets was still more complete than in the for-mal
database.
In addition, auditors attempted to determine whether
ADEQ’s formal water permits database could be used to de-termine
how long it took to complete specific steps in the
permitting process. Auditors reviewed information con-tained
in the system for a total of 99 issued permits and de-termined
that staff generally failed to record the necessary
Introduction and Background
3
OFFICE OF THE AUDITOR GENERAL
dates in the system.1 Specifically, the database contained
complete information about critical steps in the process for
only 17 of the 99 permits.
n Computerized data is inaccurate—Auditors compared the
formal permit tracking database and the spreadsheets to a
random sample of 63 application and permit files. The review
found that the application receipt and permit issue dates
were inaccurate in both the formal database and the spread-sheets.
Consequently, auditors were unable to use either
system to determine the length of time it takes ADEQ to issue
aquifer protection permits.
Accurate data about backlogs in the UST program is also un-available
since the program has yet to correct and validate all
of the information in its tracking database (USTracks) as rec-ommended
in a 1998 Auditor General review (Report No. 98-
4).
n Reliable explanations were difficult to obtain—In several
instances auditors could not obtain explanations about
ADEQ’s historical practices, and how ADEQ interprets its
statutes and rules, because there has been turnover of man-agement
staff several times within the past year. In addition,
in the WQARF program, it was difficult to determine
whether ADEQ was meeting its statutory responsibilities,
since it has not developed sufficient policies and procedures
to guide staff. For example, to answer the basic question of
when a contaminated site is officially placed on the WQARF
registry, auditors spoke to six different staff, including the
WQARF program manager, but were unable to obtain a reli-able
answer. This date is critical since it marks the beginning
of several steps ADEQ must take to begin site cleanup, at
least one of which has a statutory deadline. In addition, deci-sions
about WQARF program implementation were difficult
to document since the program did not adequately maintain
required WQARF Advisory Board meeting minutes.
1 Includes the 63 randomly selected permits issued between June 1991 and
April 1999, as well as 36 permits applied for and issued since January
1997, which was about the time the formal database was upgraded to
begin tracking dates for steps in the permit process.
Introduction and Background
4
OFFICE OF THE AUDITOR GENERAL
In conducting the audit, auditors also interviewed representa-tives
from the EPA and equivalent programs in other states;
environmental experts; representatives from stakeholder groups
including municipalities, mining, and power generation; and
permit applicants. Auditors also attended advisory board and
committee meetings relating to the programs. In addition, fed-eral
environmental regulations, state statutes, and rules relating
to the programs were reviewed. Auditors also reviewed such
documents as ADEQ’s annual reports and other publications
that it provides to applicants, as well as a 1995 fee study com-pleted
for the APP program by Arthur Andersen & Co., SC.
This audit was conducted in accordance with government
auditing standards.
The Auditor General and staff express appreciation to the Di-rector
and staff of the Department of Environmental Quality for
their cooperation and assistance throughout the audit.
5
OFFICE OF THE AUDITOR GENERAL
AQUIFER PROTECTION
PERMIT PROGRAM
6
OFFICE OF THE AUDITOR GENERAL
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7
OFFICE OF THE AUDITOR GENERAL
INTRODUCTION AND BACKGROUND
The Aquifer Protection Permit (APP) program is a critical com-ponent
of the State’s groundwater protection efforts since it is-sues
permits to prevent groundwater contamination from occur-ring.
Approximately 65 percent of the population in Arizona
utilizes groundwater for drinking water. In fact, many commu-nities
in the State depend on groundwater as their principal
source of drinking water. In recognition of this fact, the Envi-ronmental
Quality Act of 1986 was enacted to establish a com-prehensive
groundwater management program in Arizona. The
Act required ADEQ to begin regulating discharges of pollutants
that may adversely impact aquifers, which are underground
layers of sand, gravel, or porous rock where water collects.
The APP program is responsible for issuing permits to regulate
pollutants discharged by facilities including many new and ex-isting
mines, wastewater treatment plants, and industrial facili-ties.
Applicants must demonstrate that they are using the best
available demonstrated control technology to ensure that water
quality standards will not be violated or that the groundwater
will not be further degraded. The permits frequently contain
monitoring requirements to ensure that the facility remains in
compliance with APP provisions, providing an additional way
of protecting the public. New facilities must obtain a permit be-fore
they can begin operations. Facilities that were operating
under other permits or agreements may continue to do so while
their aquifer protection permit applications are being processed.
Since 1992, the program has issued approximately 296 individual
aquifer protection permits and has an estimated 200 more permit
applications in process.
Staffing and funding—Three units within ADEQ’s Water Per-mits
Section are responsible for most APP-related activities, in-cluding
issuing permits, assessing the impact of modifications
made to permitted facilities, and approving closure plans for
facilities no longer in operation. The three units are approved to
employ 28 full-time professional staff, not including supervisors.
Several of these staff have engineering or hydrology back-grounds
to enable them to assess permit application documen-
About 65 percent of
Arizonans use
groundwater for
drinking.
Introduction and Background APP Program
8
OFFICE OF THE AUDITOR GENERAL
tation to determine whether it demonstrates that pollutants will
be minimized or, in some cases, eliminated. These staff also per-form
other duties such as providing technical assistance to appli-cants
or to individuals who may later require a permit.
The Water Permits Section received revenues of approximately
$2.9 million in fiscal year 1999. These monies are used to support
several activities, including issuing aquifer protection permits.
About 43 percent of the revenues in fiscal year 1999 were from
the General Fund and about 17 percent were from federal grants.
The remaining 40 percent is from various fees, including annual
registration fees paid by permit holders. Other fees include those
paid by applicants for permit processing. Currently, ADEQ is
allowed by rule to charge applicants $49 per hour to process APP
applications. However, state law limits the amount that appli-cants
must pay. Permit holders cannot be required to pay more
than $16,000 per permit or $25,000 for a site where multiple per-mits
may be required, such as a mine. State agencies, such as the
Department of Corrections, are exempt from paying processing
fees.
9
OFFICE OF THE AUDITOR GENERAL
FINDING I COMPLIANCE WITH STATUTORY
APP PROCESSING DEADLINES
IS DOUBTFUL
ADEQ’s ability to meet new statutory deadlines for processing
aquifer protection permits is doubtful, even under the extended
schedule granted by the Legislature in 1999. Persistent problems
with staffing and training have not been corrected. Because
ADEQ cannot comply with the new deadlines unless it essen-tially
doubles the number of permits issued each year, such con-tinued
problems can only hamper its ability to meet the new
deadlines. In addition, because a new statute has created finan-cial
penalties for taking too long to issue permits applied for after
August 13, 1999, ADEQ may further delay issuing permits that
are not subject to the law.
In 1992, the Legislature required ADEQ to identify facilities that
could be contaminating the State’s groundwater and, if war-ranted,
to begin regulating them through aquifer protection
permits. Initially, the deadline for issuing permits was set for
2001. However, in 1999 the Legislature granted an extension
until 2004 (for non-mining facilities) and 2006 (for mining opera-tions).
Issuing aquifer protection permits to such facilities is
ADEQ’s most effective way to ensure that facilities are using the
best available technologies for controlling pollutant discharge. In
addition, without such permits in place, ADEQ may lack the
information needed to determine if groundwater is being con-taminated.
These permits can require facilities to upgrade pollu-tion
control efforts and to routinely monitor pollutants in their
discharges and groundwater and report the results to ADEQ. In
contrast, facilities that have not obtained such permits may not
be using the best available technology for controlling pollutants.
In 1999 the Legislature
granted ADEQ an extension
for issuing permits.
Finding I APP Program
10
OFFICE OF THE AUDITOR GENERAL
Permit Processing Affected
by Persistent Staffing and
Training Problems
ADEQ’s ability to meet the new deadlines is affected by two
long-standing and persistent problems. ADEQ’s process for
issuing permits was analyzed in a 1993 Auditor General report
(Report No. 93-5) and a number of factors that were contributing
to delays were identified. Two of these factors remain unre-solved:
n The program continues to experience staff turnover and va-cancies,
which impacts its ability to ensure timely and effi-cient
permit processing.
n In addition, management also has not developed a formal
staff training program to provide additional guidance and
direction to staff.
Staffing problems still exist—Turnover and vacancy problems
were apparent when the 1993 report was issued. At that time,
more than 60 percent of project officers responsible for process-ing
permits had been with the APP program a year-and-a-half or
less. In addition, two of three supervisors who oversaw the proc-ess
had been with the program for fewer than six months. To
resolve the problems, the 1993 report recommended that ADEQ
determine whether project officer positions needed to be up-graded
to improve the staff’s level of technical knowledge and
experience. It also suggested establishing engineering support
staff positions to assist with reviewing the technical portions of
permit applications.
ADEQ has taken steps to reduce turnover and vacancies, but
these problems persist. In 1998, ADEQ received salary increases
for its hydrologists, and it has increased recruiting salaries for
both professional and clerical staff in the APP program. How-ever,
it has not been successful in obtaining salary increases for
most existing APP staff, such as project officers and engineers. As
of July 1999, 7 of the program’s 28 professional staff positions
designated for aquifer protection permit processing were vacant.
Of the 21 staff in place, 6 had been with the program 8 months or
fewer. In addition, there has been turnover in each of the three
supervisor positions at least once during the year. Turnover in
Seven of the 28 profes-sional
staff positions were
vacant.
Finding I APP Program
11
OFFICE OF THE AUDITOR GENERAL
these staff and supervisor positions leads to permit processing
delays, since reassigning applications can result in work being
duplicated.
Formal training is still lacking—Program managers have yet to
develop a formal training program to guide and direct staff. The
1993 report indicated that ADEQ could have improved permit
processing timeliness by taking steps such as establishing formal
training for staff who process aquifer protection permits. ADEQ
management still has not developed a formal structured training
program which, according to one project officer, could improve
consistency and give staff the confidence to make timely deci-sions
about permit applications. Some APP staff indicate that the
current informal mentoring system is inadequate, and the lack of
formal training can limit their ability to ensure that permits are
processed consistently and efficiently.
ADEQ Is Unlikely to Meet Extended
Permit Processing Deadlines
Because these staffing and training problems have not been re-solved,
ADEQ is unlikely to meet its new deadlines for regulat-ing
facilities that could be polluting the State’s groundwater.
Although ADEQ staff indicate that it is possible to meet the ex-tended
deadlines, the program’s past performance does not sup-port
this assessment. Since the initial statutory deadline became
effective in 1992, the Department has issued 296 individual aqui-fer
protection permits. According to analysis of Department
records, at least 255 more non-mining facilities have not yet re-ceived
aquifer protection permits.1 To process these 255 permits
as well as the estimated 50 new aquifer protection permit appli-cations
received each year, ADEQ will need to process approxi-mately
106 permits during each of the next four-and-a-half years
1 Includes 127 non-mining facilities that should have submitted aquifer
protection permit applications between January 1995 and July 1999, re-duced
by one-third to account for the possibility that all these facilities
may not require an individual aquifer protection permit. Also included
are 170 aquifer protection permit applications in process. Calculation
does not include 28 aquifer protection permit applications in process and
5 overdue aquifer protection permit applications from mining opera-tions.
Lack of formal training for
staff may delay permit
process.
Finding I APP Program
12
OFFICE OF THE AUDITOR GENERAL
to meet its 2004 deadline.1 However, in 1998 the program issued
only 58 individual permits to non-mining facilities, which was
the highest number issued in any one year since 1992.
Ability to Meet Deadline
May Be Further Impacted
by New Permit Processing
Requirements
ADEQ’s ability to meet its deadlines for permitting facilities may
be further impacted by a statute that establishes penalties for
slow processing of applications received after August 13, 1999.
For permit applications received after this date, ADEQ must
meet specific deadlines for such activities as determining
whether an application is complete (for this step, the period typi-cally
allowed is 35 days). If ADEQ does not meet the time
frames, it is required to refund fees. It also must pay a penalty to
the General Fund equivalent to 1 percent of the refunds for each
month that it fails to make a decision to issue or deny a permit.
Because of these penalties, ADEQ may choose to focus on proc-essing
newer applications first and may delay processing appli-cations
that are not subject to penalties. To ensure that the appli-cations
that are not subject to statutory processing time frames
do not languish, ADEQ needs to develop a plan for addressing
these applications and monitoring progress to ensure timely
issuance of permits.
1 ADEQ anticipates having new Unified Permit rules in place in early
2001, which may reduce the number of aquifer protection permits
that need to be processed.
Finding I APP Program
13
OFFICE OF THE AUDITOR GENERAL
Recommendations
1. ADEQ should continue working to upgrade professional
positions within the APP program as it sees necessary.
2. ADEQ needs to develop and implement a formal training
process for staff who process aquifer protection permits to
help ensure that permits are processed efficiently and con-sistently.
3. ADEQ management needs to develop and implement a plan
for addressing aquifer protection permits in process to ensure
timely issuance of permits that are not subject to statutory
penalties.
14
OFFICE OF THE AUDITOR GENERAL
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15
OFFICE OF THE AUDITOR GENERAL
FINDING II ADEQ HAS NOT FOCUSED
AQUIFER PROTECTION PERMIT
EFFORTS ON HIGH-RISK FACILITIES
ADEQ has not ensured that some facilities obtain aquifer protec-tion
permits to further reduce the risk of these facilities releasing
unacceptable levels of pollutants into the State’s groundwater.
Beginning in 1992, the law required ADEQ to prioritize all
known facilities that may be releasing groundwater pollutants.
Although the Department did develop a prioritized list of facili-ties,
its workplan did not concentrate on the highest-priority
facilities. Furthermore, at least 132 of the facilities that ADEQ has
contacted about submitting an application have not done so.
Some have ignored the requirement for as many as four years.
ADEQ Did Not Focus Permitting
Efforts on High-Risk Facilities First
ADEQ has not ensured that facilities posing the highest risk to
the public and the environment were the first to be required to
obtain aquifer protection permits. Instead, ADEQ elected to use
an approach that focused on a combination of low-, medium-,
and high-priority facilities.
ADEQ required to prioritize facilities based on risk—A.R.S. §49-
241-D, effective in 1992, required ADEQ to prioritize all known
facilities required to obtain an aquifer protection permit, basing
the priority on the level of risk posed to the public. The initial list
that ADEQ developed had entries with risk-based priorities
ranging from a low of 0 to a high of 99. All of the facilities ap-pearing
on this “call-in” list were statutorily required to obtain
permits by 2001, and ADEQ’s work plan required a set number
of facilities to submit applications each year up through 1999.
The facilities appearing on the call-in list for each year were to
receive a letter from ADEQ notifying them that they must sub-mit
an application and providing a due date for the facility’s
response. As of December 1999, all facilities were to have re-ceived
a notice and submitted an application.
Finding II APP Program
16
OFFICE OF THE AUDITOR GENERAL
ADEQ did not follow the priorities list—When ADEQ began
calling in facilities for permitting, it did not require the highest-priority
facilities to respond first. Instead, ADEQ requested ap-plications
from a mix of low-, medium-, and high-priority facili-ties
each year. As a result, some facilities that were not required
to submit applications until 1999 had higher risk priorities than
facilities called in previous years. For example, in 1996 at least 8
facilities were rated at 13 or less, while in 1999 approximately 7
facilities had a rating of 55 or higher. By delaying the permitting
process for these high-risk facilities, ADEQ potentially allowed
some facilities to forgo upgrading pollution control efforts for
several years.
According to ADEQ staff, it was felt that the applications for
high-risk facilities would take a long time to process, and focus-ing
only on these applications could make ADEQ unable to meet
its statutory deadlines.1 At the time the call-in list was imple-mented,
management felt that existing staff was insufficient and
too inexperienced to process applications from all high-risk fa-cilities,
such as mines, within these deadlines. However, ADEQ
has still been unable to meet its initial 2001 deadline for issuing
all permits. In fact, in 1999 it received an extension allowing it
until 2004 to complete the processing of all non-mine APPs, and
until 2006 for mine APPs (for further discussion, see Finding I,
pages 9 through 13).
ADEQ Has Not Taken Action
Against Nonresponsive Facilities
ADEQ has also not taken action against facilities that have ig-nored
the requirement to submit aquifer protection permit appli-cations.
More than 40 percent of all the facilities required to sub-mit
permit applications since 1995 have failed to do so. Between
January 1, 1995 and July 1, 1999, a total of 282 facilities were re-quired
to submit APP applications; however, at least 132 have
not done so. Even more facilities may be delinquent, but infor-mation
about the status of facilities called in between 1992 and
1995 is not readily available. Of the 132 known delinquent facili-
1 The statute establishing the call-in list required ADEQ to issue APPs to
one-third of the facilities on the list by 1995; two-thirds by 1998, and all
permits by 2001.
Since 1995, 132 facilities
have failed to submit re-quired
permit applications.
Some facilities with the
most serious potential for
groundwater pollution
were not permitted first.
Finding II APP Program
17
OFFICE OF THE AUDITOR GENERAL
ties, many have ignored the requirement to apply for an APP for
years. For example, applications from 18 facilities have been
overdue since 1995, and applications for 34 others have been
overdue since 1996.
This lack of action is not in keeping with ADEQ’s stated policies.
According to ADEQ policy, the Water Permits Section should
have sent these delinquent facilities a follow-up letter within one
week of the application due date. If the facilities did not respond
to the second letter after 30 days, they should have been referred
to the Water Quality Compliance Section for enforcement action.
The Compliance Section would then send an enforcement letter,
and if facilities are still nonresponsive, the section can seek pen-alties
of up to $25,000 per day. According to data provided by
the Water Permits Section, between January 1995 and July 1999
one facility was submitted to the Compliance Section for failure
to respond. However, this delinquent facility was not turned
over to the Compliance Section until the application was nearly
three years past due. Further, the Compliance Section has no
record of actually receiving this case.
Recommendation
1. ADEQ needs to take prompt action to address those facilities
that have failed to respond to the Department’s requests to
submit APP applications, and it should initiate this action be-ginning
with highest-risk/highest-priority facilities.
18
OFFICE OF THE AUDITOR GENERAL
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19
OFFICE OF THE AUDITOR GENERAL
FINDING III INCOMPLETE AND INACCURATE
DATA LIMITS ADEQ’S ABILITY
TO MANAGE ITS AQUIFER
PROTECTION PERMIT PROGRAM
Numerous problems with computerized data need to be cor-rected
to enable ADEQ to effectively manage the APP program.
Currently, the program’s formal tracking database does not pro-vide
accurate and complete information about such basic things
as the number of aquifer protection permits issued, the time it
takes to issue permits, and the status of permits in process. This
missing information affects ADEQ’s ability to determine if proc-essing
times are met, identify where bottlenecks are occurring,
and ensure that all required fees are collected. To ensure that
these problems do not continue to impact the program and the
Department, ADEQ needs to make necessary data corrections
and establish controls for the data systems it is currently devel-oping
or upgrading.
Basic Information About APP
Workload and Processing Times
Is Unavailable, Inaccurate
Although the database for tracking aquifer protection permits
has the capability of capturing most of the data necessary to
monitor permit processing activities, the data itself is commonly
unavailable or inaccurate. The database, officially known as the
Water Permits and Certifications Tracking Database, can capture
information about facilities, owners, and the types of permits
issued, and it is designed to enable management and staff to
check the status of a permit in process and determine what addi-tional
steps still need to be completed. However, staff often fail to
enter key information into the database, and when they do, the
information entered is often erroneous. These problems have
resulted in the use of a separate informal system to track infor-mation
about overall processing times, but some of the same
problems plague this informal system as well.
Critical database informa-tion
is often missing or
erroneous.
Finding III APP Program
20
OFFICE OF THE AUDITOR GENERAL
Basic information about the program is not readily available—
Critical information needed to determine such basic things as the
number of permits issued or in process, the amount of time it
takes to process them, and the status of individual permits is not
regularly recorded in the database. For example, the database
identifies 237 individual aquifer protection plans issued or in
process, while other data sources indicate that there are as many
as 533.
Several critical dates are not regularly recorded. Auditor General
staff reviewed computerized records for a random sample of 63
issued aquifer protection permits and found that the database
did not contain:
n The date the application was received for 22 percent of the
permits,
n The date the permit was issued for 29 percent, and
n Other dates necessary to track major milestones in the permit
process, such as reviews to determine whether the applica-tion
was complete and whether it appropriately demon-strated
that the applicant met all requirements for a permit.
These and other critical dates were recorded only 17 to 33
percent of the time.
Critical information is often erroneous—The limited informa-tion
that is available is often incorrect. When documentation
from the random sample of 63 files was compared to database
entries, the database was found to contain numerous errors.
Specifically, the database indicated an incorrect date for applica-tion
receipt 43 percent of the time. The permit issue date was also
incorrect nearly 7 percent of the time.
Database problems lead to alternative tracking system—Be-cause
of the database’s unreliability, Water Permits Section staff
use separate spreadsheets to track information about aquifer
protection permits; however, the data in this informal system is
also often incorrect. A comparison of documentation from the
random sample of 63 files with the spreadsheet containing in-formation
about issued permits showed that the spreadsheet did
not contain the correct date the application was received nearly
50 percent of the time. It also did not contain the correct date that
Finding III APP Program
21
OFFICE OF THE AUDITOR GENERAL
the permit was issued about 5 percent of the time. This secon-dary
tracking system, which still does not contain accurate data,
creates additional work for staff and would not be necessary if
ADEQ’s formal data tracking system were appropriately main-tained.
Missing Data Affects
Ability to Manage Program
Because critical information is not readily available, ADEQ can-not
effectively manage the APP program. Management difficul-ties
include failing to ensure that processing times are met, being
unable to identify where bottlenecks are occurring so that they
can be fixed, and possibly not collecting fees from some permit
holders.
Management has failed to ensure that staff meet permit proc-essing
deadlines—Since 1989, management has been responsible
for ensuring that staff meet processing deadlines established in
ADEQ’s administrative rules. However, management has not
required staff to record the information needed to allow man-agement
to monitor progress toward issuing permits. The dead-lines
include such requirements as reviewing an application for
completeness within 30 days, issuing a letter of intent to permit a
facility within 90 days of receiving the application, and issuing
the permit within 30 days of the date the public comment period
ends. Although ADEQ’s own administrative rule did not set any
penalties for ignoring the deadlines, recent legislation sets penal-ties
if processing deadlines are not met. Thus, effective tracking
becomes all the more critical.
Bottlenecks cannot be easily identified and eliminated—Incom-plete
and incorrect data limits management’s ability to determine
why permit processing delays occur and to correct the problems
that are within ADEQ’s control. It has taken several years for
ADEQ to issue some permits, but management cannot easily use
the database to determine whether processing delays are the
fault of the applicant or ADEQ. As a result, making such deter-minations
requires reviewing the files and, based on correspon-dence,
manually calculating the time that ADEQ was responsible
for the permit versus the time it was outside of ADEQ’s control.
Finding III APP Program
22
OFFICE OF THE AUDITOR GENERAL
Poor data management can impact fee collections—Because the
information in the database is incomplete, annual registration
fees may not be collected from some facilities. Certain types of
facilities, such as wastewater treatment plants, must pay annual
registration fees ranging from $25 to $5,000 based on the amount
of pollutants they discharge per day. However, the billing list is
generated from the formal tracking database, which is an incom-plete
source of information about issued permits. For example,
when Auditor General staff compared the information in the
database to the information recorded in informal spreadsheets,
the informal spreadsheets contained at least 40 permitted facili-ties
that were not listed in the database.
Efforts Needed to Prevent
Future Data Problems
The passage of recent legislation penalizing slow permit proc-essing,
combined with the need to correct possible Y2K prob-lems,
have recently led ADEQ to develop new and upgraded
databases. Currently, ADEQ is implementing a newly developed
department-wide tracking database to monitor the time it takes
to issue a wide variety of permits and licenses. At the same time,
it is also beginning work on upgrading the existing Water Per-mits
and Certifications Tracking Database, which is still needed
to provide historical information and to track information that
will not be recorded in the department-wide system. Given the
problems described above, ADEQ needs to take steps to ensure
that these systems produce useful and accurate information.
Department-wide database was recently developed—Legislation
effective in 1999 requires ADEQ and other state agencies to write
rules establishing time frames for issuing licenses and permits.
The statute also imposes financial penalties for not meeting these
deadlines. In ADEQ’s case, beginning August 14, 1999, penalties
will be assessed if it does not meet processing deadlines for some
489 different categories of permits and licenses, including aquifer
protection permits. Consequently, ADEQ has established a de-partment-
wide database to track compliance. This system,
known as the Licensing Time Frame Database, was piloted be-tween
January and August 1999 to ensure that it accurately cap-tured
the required information. Errors in the existing Water
Quality Permits and Certifications Tracking Database should not
Accurate and complete
information is critical since
ADEQ now faces financial
penalties for slow permit
processing.
Finding III APP Program
23
OFFICE OF THE AUDITOR GENERAL
impact the new system because data from the existing system
will not be added to the new one.
Other database upgrades underway—Because the Licensing
Timeframe Database is not designed to track all necessary permit
information, such as day-to-day activities and permit provisions,
work was recently begun to upgrade the Water Permits and
Certifications Tracking Database as well. The upgrade will make
the database Y2K compliant so that historical data is preserved.
The upgrade also involves converting the database to a Win-dows
format so that it is easier to use and compatible with other
department databases. As part of this process, a project team has
begun meeting with staff to determine what other database
changes may be necessary or useful. The project is in the early
stages, and necessary plans for cleaning up existing data and for
improving controls over data entry have not yet been estab-lished.
Steps are needed to protect data integrity—ADEQ needs to take
steps to ensure that the same problems currently plaguing the
existing tracking systems are not perpetuated, either in the new
department-wide database or in the upgrades to the existing
database. For both systems, ADEQ needs to obtain management
reports that would identify whether staff are actually entering
information and enable the Department to track progress toward
issuing permits. It also needs to establish procedures for verify-ing
data accuracy in both systems and for cleaning up existing
data in the Water Permits and Certifications Database.
Finding III APP Program
24
OFFICE OF THE AUDITOR GENERAL
Recommendations
ADEQ should take the following steps to ensure that data in its
databases is accurate and complete enough to manage the Aqui-fer
Protection Permit Program:
1. For the Water Permits and Certification Tracking Database,
developing and implementing a plan for cleaning up infor-mation
already entered into the database and a process for
monitoring and verifying the accuracy and completeness of
information entered in the future.
2. For the Licensing Timeframe Database, developing and util-izing
management reports to determine whether staff are
entering complete data in a timely manner; and developing
procedures for verifying the accuracy of this data.
25
OFFICE OF THE AUDITOR GENERAL
FINDING IV ADEQ NEEDS TO TAKE
APPROPRIATE STEPS TO HELP
ENSURE APP PROGRAM
IS ADEQUATELY FUNDED
ADEQ has taken an inappropriate action to minimize funding
problems in its Water Permits Section, which is responsible for
issuing aquifer protection permits. State law requires ADEQ to
set fees that are reasonably related to the cost of processing per-mits,
but it also establishes a maximum amount the applicants
can be required to pay. Anticipating a funding shortfall, ADEQ
solicited additional permit processing monies directly from some
aquifer protection permit applicants above the amount estab-lished
in statute. Although state law does not preclude ADEQ
from seeking additional fees to cover its costs, such agreements
have the appearance of compromising ADEQ’s independence
and could result in inequitable treatment of applicants and per-mit
holders. To avoid appearing to compromise its independ-ence
by soliciting additional monies from businesses that the
Department regulates, ADEQ should pursue appropriate means
of ensuring that the APP program is adequately funded.
Department Sought Additional
Monies from Some Applicants
Under state law, ADEQ is limited in the amount it can charge to
process an aquifer protection permit. Although statute requires
ADEQ to set fees that are reasonable given the Department’s
costs to process aquifer protection permits, it also caps the
amount that ADEQ can charge. The limit is set at $16,000 per
individual permit and $25,000 per site with multiple permits.
ADEQ’s rules establish a charge of $49 per hour for the time it
spends on these permits. However, because some applications
may be difficult and time-consuming to review, the maximum
charges may be reached before the permits are issued. Once the
fee cap is reached, ADEQ cannot require applicants to pay more
for work it performs in connection with permits.
Statutes cap the amount
ADEQ can charge.
Finding IV APP Program
26
OFFICE OF THE AUDITOR GENERAL
In fiscal year 1998, the Department anticipated a funding short-fall
in its Water Permits Section and the fee caps were thought to
be at least partially responsible. One means the Department used
to attempt to resolve the problem was soliciting additional mon-ies
directly from some APP applicants. At least two applicants
have since signed waiver agreements to pay fees in excess of the
fee cap. Given ADEQ’s regulatory role with regard to these ap-plicants,
such funding arrangements do not appear appropriate.
ADEQ asked some applicants to voluntarily pay more than
required—At the end of fiscal year 1998, ADEQ sent letters to
approximately 18 mines indicating that fees were not sufficient
to pay the salaries of mining permit writers and that staff layoffs
would further delay permit processing unless the shortfall was
addressed. These mines were selected because ADEQ staff
thought that their applications had reached the fee cap. The letter
proposed that the affected mines voluntarily agree to pay any
costs ADEQ incurred in excess of the fee caps. It also noted that
ADEQ had sought a one-time donation from the mines in Janu-ary
1998 but had received no response.
According to the letter, if the mine agreed to pay the excess costs,
the permit application could be expedited since it would be
worked on during staff’s “billable” time. At the time the letter
was written, management had directed staff to maximize the
amount of time spent working on permits that had not yet
reached the fee cap to generate “billable hours.” Management’s
budget goal is for 62 percent of staff time to be billable for each
pay period. Generating these billable hours came first: staff were
not to work on applications for those facilities considered to be
already at the fee cap until they had reached their quota of bill-able
hours.
Two facilities have agreed to pay excess costs—Although no
applicants directly responded to the letter, two have signed an
alternative fee cap waiver agreement that was developed by
ADEQ and the Arizona Mining Association (AMA). One appli-cant
has agreed to pay up to $147,000 over the fee cap, and the
other up to $14,700 over the cap. These dollar amounts are based
on ADEQ’s estimates of the additional time needed to issue these
permits. As part of the agreements, ADEQ is required to estab-lish
a work plan outlining tasks to be completed and an accom-panying
time schedule. The applicants can terminate the agree-
ADEQ suggested that
applications could be expe-dited
if the mines paid
additional monies.
Finding IV APP Program
27
OFFICE OF THE AUDITOR GENERAL
ments at any time and receive reimbursement if ADEQ fails to
perform in accordance with the work plan and schedule.
The AMA indicated that one reason it chose to participate in
developing the agreement was because the agreement could
enable both ADEQ and the AMA to obtain more reliable infor-mation
about the actual time and costs required to issue an aqui-fer
protection permit. According an AMA representative, there is
concern about whether the Department’s records are accurate
enough to determine the true cost of issuing these permits. The
AMA representative said the industry feared ADEQ would at-tempt
to change the fee cap without accurate information. By
contrast, the waiver requires ADEQ to outline and commit to a
work plan, which the AMA felt would provide better informa-tion
about the cost of issuing the permits.
Agreements do not appear appropriate given ADEQ’s regulatory
role—Although not illegal, the agreements appear inappropriate
given ADEQ’s regulatory relationship with these permit appli-cants.
By receiving additional monies from some applicants,
ADEQ gives the appearance of compromising its independence
and raises questions about its ability to make impartial regula-tory
decisions. In fact, an AMA representative indicated that
another reason that the AMA chose to work with ADEQ on the
fee waiver was that it wanted to establish a client/consultant
type of relationship with the Department.
ADEQ Should Use More
Appropriate Means of
Covering Its Costs
Rather than soliciting voluntary contributions from businesses
that the Department is responsible for regulating, ADEQ should
pursue other means of ensuring that the program is adequately
funded. Specifically, ADEQ should work to change internal
practices that may adversely impact its revenue flow. In addi-tion,
ADEQ could seek statutory changes to the fee caps, if neces-sary,
to enable it to recover more of its costs for issuing permits.
Changes to some ADEQ practices could lessen the likelihood of
shortfalls—ADEQ needs to change some of its practices that
may contribute to irregular revenues as well as funding short-
ADEQ gives the appear-ance
of compromising its
independence by receiving
additional monies from
some permit applicants.
Finding IV APP Program
28
OFFICE OF THE AUDITOR GENERAL
falls. ADEQ could change its process for billing permit appli-cants
and also update its budgeting assumptions:
n Billing process delays payment for work performed—
ADEQ charges an initial fee to begin processing an aquifer
protection permit, but it does not normally bill for any
additional processing costs until the permit is issued. One
reason that applicants are not billed throughout the process is
that deficiencies in the Department’s accounting system force
staff to manually calculate fees owed for permit processing.
Because of this, there is not an efficient way to begin billing as
soon as permit processing fees exceed the initial application
fee. Although the delay does not affect the total amount
collected, it does affect cash flow since the Department may
wait months or even years to recover its costs.
n Budget assumptions do not accurately reflect costs—
ADEQ also needs to reassess its current budgeting assump-tions
to ensure that it either earns enough through fees or re-quests
sufficient General Fund appropriations to cover pro-gram
costs. Currently, the Water Permits Section operates
under the assumption that 62 percent of staff time needs to be
devoted to activities that are “billable,” such as processing
permits that have not yet reached the fee cap. The figure of 62
percent of “billable” staff time stems from a 1995 study by
Arthur Andersen & Co., SC. However, a number of assump-tions
made in this study are no longer true. First, activities
that the study assumed were billable, including preapplica-tion
meetings and travel, currently are not billable according
to the Department’s Administrative Rules. The study also did
not account for the time spent processing permits for state
agencies, which are statutorily exempt from paying fees for
permits obtained from ADEQ. Finally, salaries and other
program expenses have risen since the study was performed.
In revising its budgeting assumption, ADEQ should consider
such things as whether it should modify its rules to allow it to
charge for additional activities, and whether the hourly rate
should be increased to reflect current salaries and related ex-penses.
Once an accurate productive-time budget assump-tion
is developed, ADEQ needs to assess actual staff produc-tivity
and develop productivity standards. Currently, profes-sional
staff who are responsible for reviewing aquifer protec-
Finding IV APP Program
29
OFFICE OF THE AUDITOR GENERAL
tion permit applications and processing permits are not held
to productivity standards. Without such standards, it is diffi-cult
to accurately budget, evaluate staff, and ensure that
permits are issued within reasonable time frames.
Program could seek a statutory change—In addition, because
statutory restrictions on recoverable costs can contribute to
funding shortfalls, ADEQ could either seek to modify these re-strictions
or seek additional General Fund monies to support the
program. To do so, ADEQ would first need to identify reason-able
and actual costs for permitting complex facilities, such as
mines, that may require a long review time and/or multiple
permits. Then, if necessary, it could develop appropriate recom-mendations
to the Legislature for changing the statutory fee cap.
Finding IV APP Program
30
OFFICE OF THE AUDITOR GENERAL
Recommendations
ADEQ needs to use more appropriate means for ensuring ade-quate
funding for its Water Permits Section, which includes the
APP program, by:
1. Billing facilities for work done throughout the permit process
once the total charge exceeds the initial application fee col-lected;
2. Revising its budgeting assumptions to better reflect the actual
costs of operating the Water Permits Section. As part of this
process, the types of recoverable charges as well as the hourly
fee rate should be reassessed and ADEQ should modify its
administrative rules accordingly;
3. Establishing productivity standards for professional staff
who are responsible for issuing permits and monitoring their
productivity; and,
4. Identifying reasonable and actual costs for permitting facili-ties
that may require long review time, multiple permits,
and/or several potential modifications to permits in the fu-ture
and, if necessary, develop recommendations to the Leg-islature
for changing statutory fee caps.
31
OFFICE OF THE AUDITOR GENERAL
WATER QUALITY ASSURANCE
REVOLVING FUND PROGRAM
32
OFFICE OF THE AUDITOR GENERAL
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33
OFFICE OF THE AUDITOR GENERAL
1 The Federal Superfund was created by the Comprehensive Envi-ronmental
Response Compensation and Liability Act.
INTRODUCTION AND BACKGROUND
Years of improper handling and disposal of hazardous wastes
have contaminated the soil and groundwater in various locations
throughout Arizona. These contaminants have come from land-fills,
mines, and many other industrial and commercial opera-tions
ranging from semiconductor manufacturing to dry clean-ing.
To help address contamination cleanup nationwide, Con-gress
created the Federal Superfund in 1980.1 Because the Federal
Superfund lacks the resources to clean up all contaminated sites,
Arizona and several other states have created their own state
superfunds. Arizona’s superfund, known as the Water Quality
Assurance Revolving Fund (WQARF), was established in 1986.
Currently, the WQARF program is working to facilitate cleanup
of 27 sites in Arizona. As shown in Figure 1 (see pages 34 and
35), most of these WQARF registry sites are located in the metro
Phoenix and Tucson areas. WQARF staff also monitors the vol-untary
cleanup efforts of owners/operators at an additional 13
sites. WQARF’s mission is:
To protect the public health and the environment and restore
natural resources by assessing and investigating sites, ensuring
cleanup of sites that have hazardous resource contamination of
the soil and/or water and recovering the Arizona Department of
Environmental Quality’s costs from responsible parties.
WQARF investigation and cost-recovery process—The WQARF
program involves a multi-step process for cleaning up contami-nated
sites. As shown in Figure 2 (see page 36), there are six ma-jor
steps, many of which may run concurrently.
Introduction and Background WQARF Program
34
OFFICE OF THE AUDITOR GENERAL
Figure 1
Designated Contamination Sites
WQARF Arizona Water Quality Assurance Revolving Fund program designated sites.
DOD U.S. Department of Defense owned or operated sites.
NPL National Priorities List sites that the Federal Superfund oversees.
NPL/DOD National Priorities List sites that are also Department of Defense bases or facilities.
Source: Obtained from Arizona Department of Environmental Quality website:
www.adeq.state.az.us/waste/sps
Arizona
Introduction and Background WQARF Program
35
OFFICE OF THE AUDITOR GENERAL
Phoenix Area
Tucson Area
Note: West Central Phoenix is
five separate WQARF
sites.
Introduction and Background WQARF Program
36
OFFICE OF THE AUDITOR GENERAL
Figure 2
Arizona Department of Environmental Quality
Restructured WQARF Process for Cleaning Up Contaminated Sites1
And Current Status of Sites in Process
As of August 15, 1999
1 Under the process, some steps may be occurring simultaneously.
Source: Auditor analysis of information obtained from ADEQ.
Assessing Sites for
Potential Cleanup
n ADEQ investigates sites for potential placement on
WQARF registry of sites designated for cleanup.
n 27 sites are currently on registry, with approxi-mately
80 others under review.
Obtaining
Community Input
n ADEQ must notify individuals in areas affected by
contamination and form community advisory
boards for each community.
n 2 sites have advisory boards.
n ADEQ contracts with environmental experts to
determine the extent of contamination and identify
clean-up alternatives.
n ADEQ selects the most appropriate cleanup meth-ods.
n 16 sites are in this process.
Investigating
Contamination and
Identifying
Clean-Up Method
Identifying
Parties Responsible
n ADEQ must identify all parties that contributed to a
site’s contamination.
n This step is finished at 1 site (parties identified were
unable to pay) and underway at 10 others.
Allocating
Clean-Up Costs
n ADEQ allocates costs among responsible parties.
n If parties cannot pay their costs, DEQ determines an
“orphan share” to be paid from the Fund.
n ADEQ plans to complete cost allocation for one site
by the end of 1999.
Cleaning Up
the Site
n Once the steps above are done, cleanup can begin.
n Sites posing an immediate threat can begin sooner.
n 1 site involving a threat to Payson’s drinking water
is in this step of the process.
n Clean-up may take up to 30 years or longer.
Introduction and Background WQARF Program
37
OFFICE OF THE AUDITOR GENERAL
Program funding—To ensure sufficient resources were available
to investigate responsible parties and to pay for “orphan shares,”
WQARF was statutorily guaranteed $18 million annually begin-ning
in fiscal year 1998. For fiscal year 1998, a majority of the
monies for the program were appropriated from the General
Fund. However, starting July 1, 1999, A.R.S. §49-282(B) replaced
these General Fund appropriations by allowing WQARF to re-ceive
up to $15 million from corporate income taxes annually. As
shown in Table 1 (see page 38), other Fund revenues are received
from fines, water use taxes, and various license and registration
fees. These other revenues total approximately $3 million each
year.
Introduction and Background WQARF Program
38
OFFICE OF THE AUDITOR GENERAL
Table 1
Arizona Department of Environmental Quality
Water Quality Assurance Revolving Fund
Statement of Revenues, Expenditures, and Changes in Fund Balance
Years Ended June 30, 1997, 1998, and 1999
(Unaudited)
1997 1998 1999
Revenues:
State General Fund appropriations 1 $1,705,000 $14,523,300 $14,523,300
Fines and forfeits 2 2,144,284 1,942,163 3,305,261
Water use taxes 3 1,909,981 1,891,072 1,957,725
Charges for services 4 1,172,452 1,336,345 1,681,409
Interest on investments 71,190 72,687 629,329 5
Licenses, fees, and permits 25,687 3,145
Total revenues 7,028,594 19,765,567 22,100,169
Expenditures:
Personal services 1,532,298 1,733,899 2,117,979
Employee related 286,464 319,831 380,223
Professional and outside services 6 3,624,151 5,839,457 8,789,666
Travel, in-state 68,078 51,326 53,885
Travel, out-of-state 7,044 17,787 20,062
Aid to organizations 15,226
Other operating 146,969 264,861 309,511
Capital outlay 104,415 65,821
Allocated costs 7 816,773 1,084,476 1,234,511
Total expenditures 6,586,192 9,377,458 12,921,063
Excess of revenues over expenditures 442,402 10,388,109 9,179,106
Net operating transfers in (out) 8 24,588 (800,000) (800,000)
Excess of revenues and transfers in over expenditures and transfers out 466,990 9,588,109 8,379,106
Fund balance, beginning of year 7,444,280 7,911,270 17,499,379
Fund balance, end of year $7,911,270 $17,499,379 $25,878,485 9
1 Includes an increase of $12.7 million in 1998 and to pay for personnel, legal support, and costs associated with searching for
responsible parties and to contract for cleanup at priority sites where no responsible party could be found.
2 Remedial action costs recovered from responsible parties.
3 Assessed on businesses operating municipal water delivery systems in accordance with A.R.S. §42-5302.
4 Includes fees for prospective purchaser agreements, water quality assurances, fertilizer licenses, and manifest resubmittals, and
for hazardous waste facility, hazardous waste resource recovery facility, industrial discharge, and pesticide registrations.
5 Since the Department received additional State General Fund appropriations for priority site cleanup in 1998, the monies available
for investing have increased nearly $18 million. Consequently, investment earnings increased significantly between 1998 and 1999.
6 Includes approximately $1.3 million, $3.9 million, and $6.1 million expended for priority site cleanup in 1997, 1998, and 1999,
respectively.
7 Amount is the portion of Department-wide overhead expenditures allocated to the Water Quality Assurance Revolving Fund,
such as administrative personnel, rent, general accounting, telecommunications systems, and risk management costs.
8 Beginning in 1998, A.R.S. §49-282 requires the Department to transfer $800,000 from the Water Quality Assurance Revolving Fund
to the Arizona Water Quality Fund administered by the Arizona Department of Water Resources.
9 Includes $2.6 million reserved for a long-term loan to the Tucson Regional Airport, and the remaining $23.3 million designated
for priority site cleanup expenditures and program operating expenditures.
Source: The Arizona Financial Information System Revenues and Expenditures by Fund, Program, Organization, and Object report and
Trial Balance by Fund report; and State of Arizona Appropriations Report for the years ended June 30, 1997, 1998, and 1999.
39
OFFICE OF THE AUDITOR GENERAL
FINDING I CHANGE IN LIABILITY APPROACH
PRESENTS UNIQUE CHALLENGES
TO WQARF PROGRAM
The WQARF program is still in the process of adjusting to a sig-nificant
restructuring made by the Legislature in 1997. Under
this restructuring, WQARF can no longer identify a single party
who contributed to pollution at a site and hold that party re-sponsible.
It must now use its best efforts to identify all contrib-uting
parties, allocate responsibility proportionately among
them, and determine each party’s ability to pay. Although the
program is now considered more equitable, its implementation
poses challenges for WQARF that are not shared by the Federal
Superfund and most other states. Because Arizona’s program is
new, it is still too early to assess the long-term effect of these
changes.
WQARF Restructured in 1997
In 1997, WQARF was restructured to create a more equitable and
workable state superfund. Prior to 1997, WQARF’s joint liability
standard was largely viewed as inequitable by the regulated
community. Under joint liability, WQARF could hold a single
party responsible for all cleanup costs at a site, even though
multiple parties may have contributed to the contamination. This
usually meant WQARF would seek to recover cleanup costs
from only the parties that were the largest and most obviously
able to pay, leaving these parties to recover their cleanup costs
from other responsible parties. It was this aspect of joint liability,
which shifts the burden of investigating and proving liability
from the State to the first-identified parties, that drew the most
criticism.
The restructuring efforts also resulted from concerns about the
lack of dedicated funding. Before fiscal year 1998, revenues
available to the program were inconsistent from year to year. For
example, in fiscal year 1994, no General Fund monies were ap-propriated
for WQARF cleanup activities. In fiscal year 1995,
Restructuring increased
WQARF’s responsibili-ties
and funding.
Finding I WQARF Program
40
OFFICE OF THE AUDITOR GENERAL
General Fund appropriations were approximately $900,000; and
in fiscal year 1996 they totaled approximately $1.5 million. These
inconsistencies in funding hampered cleanup efforts because the
WQARF program lacked the resources necessary to begin
cleaning up contaminated sites prior to determining whether
cost recovery was possible.
The 1997 changes were designed to address both issues. The
restructured WQARF program now operates under a different
liability standard, described in more detail below, and receives
annual dedicated funding of $18 million.
Proportional Liability Poses
New Challenges to WQARF
The switch to a new liability standard, called proportional liabil-ity,
places new challenges on ADEQ. Instead of holding one
party responsible for a site’s entire cleanup cost, ADEQ must
conduct comprehensive historical searches to identify all respon-sible
parties. ADEQ must then determine each party’s propor-tional
share of cleanup costs, and pay the shares of those parties
who are no longer financially viable.
ADEQ must identify all responsible parties—The change to
proportional liability has substantially increased ADEQ’s duties
for investigating parties potentially responsible for site contami-nation.
A.R.S. §49-287.02 requires ADEQ to use its “best efforts”
to identify all persons who may be responsible, regardless of
when the contamination occurred. Because of the “best efforts”
requirement, ADEQ must identify hundreds of potentially re-sponsible
owners and operators of contaminated property,
searching back to when the property was undeveloped wilder-ness.
ADEQ must do this regardless of the parties’ financial vi-ability
or continued existence. In one case, this meant researching
back to pre-statehood times to determine ownership.
ADEQ must proportionally allocate responsibility—Once all
responsible parties are identified, and a cleanup remedy is se-lected,
ADEQ faces the additional challenge of allocating shares
of cleanup costs. For example, if ADEQ determined a party was
responsible for 40 percent of a site’s contamination, ADEQ
would hold that party responsible for 40 percent of cleanup
There may be hundreds of
potentially responsible
parties.
Finding I WQARF Program
41
OFFICE OF THE AUDITOR GENERAL
Landfills—Determining re-sponsible
parties at landfills is
very difficult. Prior to federal
regulations in 1980, industries
dumping hazardous materials
in municipal landfills did not
keep records of the materials,
or the quantities dumped.
Co-mingled Plumes—Several
hundred parties may have
contributed to contamination
at one co-mingled plume in
central Phoenix.
costs. Determining the amount of contamination each party
caused could be very difficult, and representatives from the EPA
stated that it may be impossible at some sites, such as landfills or
sites where multiple contamination plumes run together.
WQARF’s share of cleanup costs could be
substantial—Even after ADEQ completes
the investigations and allocation,
WQARF’s share of cleanup costs could be
substantial. According to ADEQ, for the
$18 million annual funding to be
adequate, WQARF’s share of cleanup
costs must not exceed 35 percent.
However, when responsible parties
cooperate and agree to the allocation,
statute guarantees a 25 percent discount,
leaving little money for “orphan shares,”
those portions of cleanup costs assigned
to parties that no longer exist or are
unable to pay, and must therefore be paid
by WQARF. Parties may be unable to pay
for various reasons. Contamination at some WQARF sites oc-curred
in the 1940s or earlier, and many parties responsible for
such contamination have been defunct or deceased for several
years. Others still exist but may be unable to pay their full share
or may become financially unviable during the life of the cleanup
project. Projects can last for 30 years or more and cost tens of
millions of dollars. So far, ADEQ estimates that cleanup at 10 of
the 27 registry sites will be completely or significantly funded by
WQARF.
Additional Time and
Resources Required
Although the restructured investigation and allocation processes
have helped resolve inequities, these additional requirements are
time-consuming and may contribute to further cleanup delays
and increased costs. In particular, searches for potentially re-sponsible
parties can be very time-consuming and difficult. Ad-ditionally,
proportional allocations may also increase time and
costs, delay cleanup, and may raise new equity questions from
small businesses, according to a study begun in 1995 by the En-
Finding I WQARF Program
42
OFFICE OF THE AUDITOR GENERAL
vironmental Protection Agency, which administers the Super-fund
at the federal level. To expedite searches and allocations,
ADEQ hired more full-time investigators. It also has hired a
contractor to conduct the investigation and allocation phases of
the process for one site.
Delays caused by lengthy investigations allow plumes to
spread—Lengthy searches for responsible parties may further
delay cleanup efforts and increase the costs, as untreated con-tamination
continually leaches into previously uncontaminated
soil and groundwater. Environmental experts have stated that
investigating a single party may take 18 months or longer and
cost thousands of dollars. Although an investigator can research
between 5 and 10 parties at once, some sites have several hun-dred
parties to investigate. One site investigation began with as
many as 1,000 potentially responsible parties. ADEQ estimates
that the investigation at that site could take as long as 10 years,
and that a plume of contamination already 12 miles long could
spread another half mile during that time.
Historically, searching for responsible parties has been difficult
and time-consuming for two main reasons.
n First, witness interviews in historical searches are difficult as
witnesses may have moved or are deceased. Many may have
forgotten relevant details, and some may also feel loyalty to
past employers and be hesitant to reveal information.
n Second, many records are not available for businesses that
no longer exist, and businesses still in operation may rou-tinely
purge documents after a few years. Other records may
be destroyed if a business suspects it may become the subject
of a search. Further, some types of records were never even
kept. For example, hazardous waste records were not re-quired
in Arizona prior to 1984.
EPA studied proportional liability—Although the EPA operates
under joint liability, it did study proportional liability in a pilot
study at nine federal Superfund sites and encountered some of
the same difficulties Arizona faces. Specifically, the EPA found
The investigation at one
site could take ten years.
Finding I WQARF Program
43
OFFICE OF THE AUDITOR GENERAL
that the allocation process was lengthy, expensive, and delayed
the progress of site cleanup. Additionally, several smaller busi-nesses
felt the process was neither fair nor cost-effective.
n Difficult and time-consuming allocations—The propor-tional
allocation of cleanup costs took much longer than ex-pected
because any party could undermine the entire process
by treating the allocation as litigation. At several sites, parties
made numerous requests for information, and requested
depositions. There were also instances where nearly all par-ties
sought settlement, but a single party insisted that the
EPA complete the allocation. According to the EPA, the allo-cation
process may increase, not decrease, costs for all parties.
n Delayed cleanup—The time needed for investigations and
the allocation process hindered cleanup progress because
parties wanted to know their share of cleanup costs before
they would commit to performing the work.
n Some equity issues persisted—While several parties felt
their allocation was fair considering the available informa-tion,
others felt their share was not fair because major corpo-rations
with greater resources were better able to influence
the allocation. Additionally, several small businesses said
that the costs of protecting their interests in the allocation
process may actually be higher than litigation.
ADEQ’s efforts to improve search progress—Little progress was
made in responsible party searches prior to 1997, but with its
increased funding, ADEQ has taken steps to move the process
forward. ADEQ increased investigator salaries, which made
investigators easier to hire and retain. Since May 1999, ADEQ
has had four full-time investigators. ADEQ also has an agree-ment
with the Arizona Attorney General’s Office, which has
hired three full-time investigators. Additionally, ADEQ hired a
contractor in June 1999 to identify responsible parties and allo-cate
cleanup costs to those parties for one registry site. ADEQ
hopes to complete the searches and allocation for that site by
April 2000. Depending upon this site’s outcome, ADEQ may
consider using contractors at other sites for responsible party
searches, allocations, or other specialized assistance with activi-ties
such as title searches.
Finding I WQARF Program
44
OFFICE OF THE AUDITOR GENERAL
Other States’ Liability Standards
Differ from Arizona’s
To determine if the experience of other states could provide any
insight into what ADEQ is likely to encounter as it moves
through this process, Auditor General staff examined how other
states with superfunds established liability. However, Arizona’s
standard turns out to be largely unique in the way it applies
proportional liability. Most states operate under joint liability or a
more flexible version of proportional liability. According to the
Environmental Law Institute’s 50-state study of state superfund
programs in 1998, 36 states operate under joint liability. Eleven of
those states may use proportional liability when appropriate.
Arizona is one of only five states that specify proportional liabil-ity
as its standard. Of those states, Alabama, California, and Ten-nessee
have more flexibility in their administration of propor-tional
liability.1 For example:
n Alabama attempts to limit its role to overseeing cleanup
efforts. It encourages all parties to negotiate settlements. If
necessary, Alabama would conduct a proportional allocation,
but has not had to do so. When parties are uncooperative,
Alabama refers the site to the EPA, which would pursue the
parties jointly.
n California cannot hold parties liable for contamination that
occurred prior to the program’s creation in 1982.2 This sig-nificantly
limits the number of potentially responsible parties
it must investigate. It prepares a non-binding allocation de-signed
to initiate settlements among cooperative parties. Un-cooperative
parties are pursued under joint liability. Many
states pursue parties under federal joint liability provisions
outlined in the Comprehensive Environmental Response,
1 Utah’s Superfund also specifies proportional liability as its liability stan-dard,
but it is not yet fully implemented.
2 California’s Superfund was allowed to sunset in January 1999 because
the California State Assembly could not agree on specific details of the
program’s renewal. Representatives of California’s program expect it to
be renewed with proportional liability similar to how it previously func-tioned.
Finding I WQARF Program
45
OFFICE OF THE AUDITOR GENERAL
Compensation, and Liability Act (CERCLA). A.R.S. §49-
287(B) prohibits ADEQ from pursuing parties jointly under
CERCLA.
n Tennessee facilitates settlements among responsible parties,
but allocation may be used if parties are unable to settle. A
representative of Tennessee’s Superfund said businesses pre-fer
to settle among themselves, rather than having the state
dictate an allocation to them. Tennessee also has the option to
pursue parties under joint liability.
Too Early to Judge
Full Effect of Changes
For several reasons, it is too early to determine the full effect of
the 1997 restructuring. The revised program has been in place for
a relatively short time, and not enough progress has been made
toward site cleanup to assess effectiveness. In addition, the way
ADEQ performs some steps may also change as it continues to
work with the new proportional liability standard. Since the
program was restructured, ADEQ has identified 27 sites needing
remediation and has placed them on the WQARF Site Registry.
Through the voluntary cleanup program, ADEQ staff is also
providing technical support for and monitoring of cleanup ef-forts
at an additional 13 sites. Currently, ADEQ is considering
approximately 80 other sites for potential placement on the reg-istry
and it estimates that there could be hundreds of other sites
that may eventually require investigation.
46
OFFICE OF THE AUDITOR GENERAL
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47
OFFICE OF THE AUDITOR GENERAL
UNDERGROUND
STORAGE TANK PROGRAM
48
OFFICE OF THE AUDITOR GENERAL
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49
OFFICE OF THE AUDITOR GENERAL
INTRODUCTION AND BACKGROUND
The Underground Storage Tank (UST) program was established
in 1986 to reduce the risk that leaking underground storage tanks
pose to human health and the environment through soil, surface
water, and groundwater contamination. However, unlike
WQARF, UST’s cleanup responsibilities are limited to substances
such as gasoline, aviation and diesel fuel, and petroleum solvents
that have leaked from underground storage tanks. In addition,
UST provides financial assistance to the owners/operators of
these leaking tanks through the State Assurance Fund (SAF).
Financial assistance for site cleanup is provided regardless of the
owner/operator’s ability to pay.
Cleanup process for leaking underground storage tank sites—For
an owner/operator to obtain financial assistance to investigate
and clean up a leaking underground storage tank site, a number
of steps must typically be completed. Eligible owner/operators
who have incurred cleanup costs can submit applications for
reimbursement. Owners/operators seeking ADEQ’s preap-proval
of investigative and/or cleanup work submit applications
that include site characterization plans detailing the work re-quired
to define the extent of contamination and/or work re-quired
to clean up the site. ADEQ reviews and approves the
work plans and, when money is available, sets it aside to pay for
90 percent of eligible costs.
Program funding and staffing—Since 1990, the State Assurance
Fund has paid approximately $118.6 million toward cleaning up
2,564 contaminated sites. Revenues for the Fund total approxi-mately
$28 million each year, generated mainly through a one-cent-
per-gallon tax on substances such as gasoline, which are
stored in underground tanks (see Table 2, page 50). This level of
revenue is not sufficient to pay all claims for reimbursement of
cleanup costs. At the end of fiscal year 1999, approved but un-paid
claims totaled more than $55 million.
The Fund also pays the program’s administrative costs. In fiscal
year 1999, approximately 24 percent of Fund monies ($6.73 mil-lion)
were spent on administrative costs, including salaries for
Since 1990, the SAF has
paid $118.6 million to clean
up contaminated sites.
Introduction and Background UST Program
50
OFFICE OF THE AUDITOR GENERAL
Table 2
Arizona Department of Environmental Quality
State Assurance Fund
Statement of Revenues, Expenditures, and Changes in Fund Balance
Years Ended June 30, 1997, 1998, and 1999
(Unaudited)
1997 1998 1999
Revenues:
Underground storage tank contents tax $23,061,796 $25,315,091 $26,317,605
State General Fund appropriations 1 3,000,000 1,578,000
Interest on investments 1,308,747 1,588,600 1,633,528
Other 18,288 34,571
Total revenues 27,370,543 28,499,979 27,985,704
Expenditures:
Personal services 1,811,663 1,918,330 2,398,915
Employee related 345,006 371,777 457,588
Professional and outside services 6,452,804 3,694,484 3,088,057
Travel, in-state 24,981 23,843 25,574
Travel, out-of-state 9,175 6,029 3,473
Aid to individuals and organizations 2 20,204,306 18,218,348 20,588,650
Other operating 89,053 253,253 233,777
Capital outlay 52,742
Allocated costs 3 1,001,536 1,207,842 1,406,949
Total expenditures 29,991,266 25,693,906 28,202,983
Excess of revenues over (under) expenditures (2,620,723) 2,806,073 (217,279)
Fund balance, beginning of year 35,504,947 32,884,224 35,690,297
Fund balance, end of year $32,884,224 $35,690,297 $35,473,018 4
1 Includes amounts to reimburse storage tank owners/operators for leaking underground tank cleanup costs.
2 Reimbursements for leaking underground storage tank cleanup costs to owners/operators.
3 Amount is the portion of Department-wide overhead expenditures allocated to the State Assurance Fund, such
as administrative personnel, rent, general accounting telecommunications system, and risk management costs.
4 Includes $5.4 million reserved for a long-term loan to the Regional Public Transportation Authority, and the
remaining $30.1 million designated for payments to claimants for clean-up costs and program operating expen-ditures.
Source: The Arizona Financial Information System Revenues and Expenditures by Fund, Program, Organization, and
Object report and Trial Balance by Fund report; and the State of Arizona Appropriations Report for the years
ended June 30, 1997, 1998, and 1999.
Introduction and Background UST Program
51
OFFICE OF THE AUDITOR GENERAL
most of the program’s 83 FTE. These staff review and approve
plans for cleanup, monitor cleanup efforts, and take action
against tank owners who fail to take appropriate cleanup meas-ures.
They also oversee the cleanup of sites where the tank
owner is unknown or is unwilling or incapable of leading the
cleanup effort.
52
OFFICE OF THE AUDITOR GENERAL
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53
OFFICE OF THE AUDITOR GENERAL
FINDING I CONTINUED EFFORTS NEEDED
TO ADDRESS EFFICIENCY
AND FUNDING ISSUES IN THE
UNDERGROUND STORAGE
TANK PROGRAM
The UST program has made progress in improving its perform-ance
since a 1998 Auditor General performance audit, but con-tinued
work is needed. ADEQ has become more efficient in han-dling
leaking underground storage tank cases, reducing a sub-stantial
backlog of plans for addressing sites that need cleanup.
However, improvements are still needed in the program’s com-puter
database for tracking sites. Action is also needed to address
the lack of funding available for approved cleanups. Finally,
ADEQ has recently proposed rules that would enable it to focus
limited resources on cleaning up sites that pose the greatest dan-ger
to the public; however, these rules are not expected to be in
place until May 2000.
1998 Performance Audit Identified
Concerns in Several Areas
In 1998, the Auditor General completed a performance audit of
the Underground Storage Tank program that identified a num-ber
of concerns related to program management and the pro-gram’s
future (Report No. 98-4). These concerns covered the
following areas:
n Backlog of work and insufficient management informa-tion—
At the time of the audit, the UST program had accu-mulated
a large number of site characterization reports that
were awaiting approval. These reports are critical since they
help ensure that appropriate steps will be taken to clean up
the leak. ADEQ also had a backlog of other review work.
Adding to the problem, the program’s management infor-mation
was incomplete and inaccurate.
Finding I UST Program
54
OFFICE OF THE AUDITOR GENERAL
n Need for action on funding options—ADEQ lacked suffi-cient
monies to meet all of its obligations for providing finan-cial
assistance to help clean up leaks. The audit outlined a
number of recommendations, including funding increases,
reducing the expenses the State Assurance Fund would sup-port,
terminating the Fund, and reducing administrative ex-penditures
from the Fund.
n Need for a risk-based approach to setting priorities—
ADEQ had no rules that would allow it to stretch scarce
cleanup dollars by focusing resources on those sites that pose
the greatest risk to the public and the environment.
Program Has Increased
Efficiency, but Management
Information Needs Attention
ADEQ has made progress implementing 1998 audit recommen-dations
to improve its efficiency in handling leaking under-ground
storage tank cases. According to ADEQ data, the num-ber
of site characterization reports awaiting ADEQ approval is
down from 756 in October 1997 to 124 in August 1999. Of the
124, 96 have been awaiting approval for 120 or more days. In
addition, the number of closure requests awaiting review has
declined from 900 in October 1997 to 79 in August 1999. Of these
79, 54 have been awaiting review for 120 or more days. ADEQ
also now monitors staff productivity and has developed a staff
training program and a guidance manual to help ensure that
staff provide consistent direction to owners/operators and con-sultants.
However, additional work is needed to improve the program’s
management information. The 1998 audit report found problems
with the information used to track leaking underground storage
sites and recommended that ADEQ ensure that its database
(called USTracks) is complete and accurate. Although ADEQ
initially said it would complete this process by January 1999, as
of September 1999 it indicated it had corrected 62 percent of the
data and did not know how much time would be needed to
correct the rest. The 1998 audit also recommended that the pro-gram
develop and use management reports that track case
status, backlogs, and timeliness of all process steps. While the
Finding I UST Program
55
OFFICE OF THE AUDITOR GENERAL
system has the capability of producing such reports, computer
programming has still not been completed to make the reports
easily generated and readily available to management.
Action Still Needed to Address
State Assurance Fund Problems
In 1998, the State Assurance Fund did not have sufficient monies
to pay millions of dollars in approved claims for cleanup costs.
The 1998 report analyzed several ways to address the issue: in-creasing
revenues, limiting claims, eliminating the Fund, and
finding ways to reduce administrative expenses from the Fund.
n Increasing SAF revenue—Since 1998, revenue to the State
Assurance Fund has not increased and the backlog of unpaid
claims has grown. Approved but unpaid claims totaled more
than $55 million at the end of fiscal year 1999, compared with
$48 million in October 1997. At the end of fiscal year 1999, the
Fund also had 541 pending claims requesting more than $22
million. The excise tax remains unchanged at one-cent-per-gallon
on substances stored in underground tanks. In addi-tion,
General Fund appropriations actually declined between
fiscal years 1997 and 1998 and there was no appropriation in
the 1999 fiscal year. However, the Legislature did appropri-ate
$1.8 million for the Fund for fiscal years 2000 and 2001.
n Reducing future claims—Although one statutory change
has been made since 1998 to reduce the amount the State As-surance
Fund would contribute toward cleaning up a site,
other changes that were also made may have the opposite ef-fect.
The 1998 audit recommended increasing the copayment
amounts that owners/operators must pay toward cleanup.
Since the 1998 report, A.R.S. §49-1054(A) was amended to in-crease
the owners/operators’ copayment from 10 to 50 per-cent
of cleanup costs for releases reported after June 30, 2000.1
However, amendments to A.R.S. §49-1052 require the Fund
to pay for activities that were previously ineligible for reim-bursement,
such as soil sampling, analyses and reporting ac-
1 The increased copay applies to tanks that had not been closed or up-graded
to comply with new federal standards.
Revenues have not in-creased
and the backlog of
approved but unpaid
claims is now more than
$55 million.
Finding I UST Program
56
OFFICE OF THE AUDITOR GENERAL
tivities. Additionally, other modifications made more own-ers/
operators likely to qualify for $1 million in assistance
from the State Assurance Fund rather than $500,000.
n Terminating the Fund—No action has been taken yet to
terminate the Fund. The 1998 audit reported that continuing
the State Assurance Fund was an unnecessary cost to the
State because affordable private insurance existed. The Leg-islature
has since allocated funding for a study on the extent
and type of groundwater contamination from leaking under-ground
storage tanks, and the findings could be used to help
determine the Fund’s future. One factor that may be ad-dressed
in the study is the extent of MTBE contamination.
MTBE is a gasoline additive designed to reduce air pollution.
n Reducing administrative expenses—ADEQ has taken
action to reduce its administrative costs since the previous
audit. In fiscal year 1997, administrative expenditures ac-counted
for 32.6 percent of total fund expenditures. (ADEQ
estimated that if it had been able to pay all approved claims,
administrative expenses would have been 12 percent.) To
reduce administrative costs, the Fund has assumed tasks
previously administered by a contractor, such as technical
claims reviews and the appeals process. In fiscal year 1999,
the program’s administrative costs were 24 percent, and
ADEQ estimates that its administrative costs would have
been below 10 percent if it had been able to pay all claims
that it approved that year. ADEQ will need to continue to
improve efficiency as A.R.S. §49-1051(B) requires the pro-gram
to limit its administrative costs to the greater of 21 per-cent,
or approximately $5.7 million, by July 1, 2002.
ADEQ Should Continue to
Implement Risk-Based Approach
ADEQ has not yet fully implemented a risk-based approach that
would allow it to use its limited resources to clean up leaking
underground storage tank sites posing the greatest threat to the
public, as recommended by the 1998 audit and by the EPA. At
the time of the audit, ADEQ required all reported sites to be
cleaned up to meet drinking water standards, regardless of their
threat to human health. However, by implementing a more
Administrative expenses
have declined since 1997.
Finding I UST Program
57
OFFICE OF THE AUDITOR GENERAL
Tier 1—Used as a screening device. When con-tamination
is below pre-set standards, no
cleanup is required. When contamination ex-ceeds
the standards, cleanup can be done or a
Tier 2 assessment may be performed.
Tier 2—Sites with higher contamination levels
are studied and less conservative cleanup stan-dards
are determined depending upon the extent
of contaminants, future uses of groundwater, and
effects on human health.
Tier 3—Higher-priority sites are subject to more
comprehensive evaluation and cleanup.
flexible approach, known as Risk-Based Corrective Action
(RBCA), ADEQ could determine which sites to clean up first and
allow low-risk sites to exceed allowable contamination stan-dards.
To implement this approach in Arizona, the audit rec-ommended
that ADEQ transfer innovative ideas from other
states and use outside technical resources to develop computer
software and guidance documents.
During the course of the 1998 audit, ADEQ began developing
RBCA rules. As part of the
process, ADEQ consulted
with other states, the EPA,
and other organizations to
develop a three-tiered
approach designed to more
efficiently use its cleanup
resources. A.R.S. §49-1005(F)
requires ADEQ to adopt
these rules by December 31,
1999. ADEQ has recently
proposed RBCA rules but
does not expect them to be in
place until May 2000. In
anticipation of implementing RBCA, ADEQ has purchased a
computer model to track sites through the three-tiered process
and has initiated staff training in the model.
Finding I UST Program
58
OFFICE OF THE AUDITOR GENERAL
Recommendations
1. ADEQ needs to continue its efforts to ensure that its US-Tracks
database is complete and accurate.
2. ADEQ also needs to develop and make management infor-mation
readily available to enable UST managers to track
case status, backlogs, and processing timeliness.
3. The Legislature should consider increasing the gasoline ex-cise
tax or increasing General Fund appropriations to ensure
there are sufficient revenues to pay existing claims for
cleanup costs.
4. ADEQ needs to complete rules to enable it to implement a
risk-based approach to cleanup that would stretch its scarce
resources and focus on those sites that pose the greatest dan-ger
to public health or the environment.
OFFICE OF THE AUDITOR GENERAL
Agency Response
OFFICE OF THE AUDITOR GENERAL
- 1 -
AQUIFER PROTECTION PERMIT (APP) PROGRAM
FINDING I. COMPLIANCE WITH STATUTORY APP PROCESSING DEADLINES IS
DOUBTFUL
Recommendation #1. ADEQ should continue working to upgrade professional positions within
the APP program as it sees necessary.
ADEQ Response: The finding of the Auditor General is not agreed to, but the recommendation will be
implemented.
The issue of low paid technical staff positions is a longstanding one. It has been recognized by the
Legislature and Administration and, this year, in a Department of Administration “Compensation Proposal
for FY2000-FY2001,” it is addressed again. ADEQ is working, within its capability, to upgrade the
positions. Despite this problem, the Department disagrees that its ability to meet our APP processing
deadline is at risk. Through improved training, program enhancements, detailed project management, and
innovative staffing, the Department is confident that it will manage the required approximately 100 permit
actions needed each year for the next four years.
Recommendation #2. ADEQ needs to develop and implement a formal training process for staff
who process aquifer protection permits to help ensure that permits are processed efficiently and
consistently.
ADEQ Response: The finding of the Auditor General is not agreed to, but the recommendation will be
implemented.
The report suggests that the Department did nothing to improve training for its staff in the APP program,
essentially ignoring the recommendations of the 1993 program audit. This is incorrect. Many formal and
informal training efforts have been implemented notwithstanding the limited training budget which has
plagued the program for most of its lifetime. Training has been focused on two tracks: 1) technical
decision-making and 2) permitting processes. Numerous efforts have been provided to guide staff along
technical decision-making processes. One such effort is the monthly meeting of Water Permits hydrologists
which is much more than an informal mentoring effort. Each month the program hydrologists, led by the
most senior hydrologist in the Department, focus on hydrologic issues of specific projects which are
"stumping" the permit team. The group works through the problems and analyzes solutions. These monthly
meetings serve many training purposes: hydrologists continue training in methodology and analysis with
specific case studies relevant to their daily work; they explore current issues in hydrology; and discuss
consistency in presenting their findings. Additionally, the Water Permits Section has taken advantage of
several training courses offered by the Environmental Protection Agency or other outside vendors, including
"Hydrology for Non-Hydrologists" for those project officers and engineers who are not trained as
hydrologists and seminars on liner technologies and acid-mine drainage. Along the line of permitting
process training, in addition to the individual mentoring and the development of the permitting process
- 2 -
flowchart, the Permits Section management also created "how to" templates for project officers to use in
areas ranging from "How to Write a Memo" to issue tracking and project management. These resources
and similar materials are compiled in the “Ready Reference” Filing System available to all staff. Specific
software has been purchased to assist with workload tracking (i.e. Microsoft Project) and formal training
has been offered to staff. The Department is developing a plan focused on skill, knowledge and abilities
(SKA). Skill is focussed on applicable law/rules, program processes and project management.
Knowledge is based upon the education/training which qualifies a person for the position along with
continuous education depending on the job requirements. Abilities include technical writing, public
speaking, team building and negotiations.
More can always be done to improve training, and a formal training program, provided adequate funding,
would certainly help. The Department accepts the recommendation that a formal training program will help
the APP program improve and plans to finalize the “SKA” outline for APP permitting staff within the next
two months. The Department does not agree that it has done nothing since 1993 to implement formal and
informal training to help staff. The Department does not agree that the lack of a formal training program
will prevent the Department from meeting the statutory requirement for issuing permits.
Recommendation #3. ADEQ management needs to develop and implement a plan for addressing
aquifer protection permits in process to ensure timely issuance of permits that are not subject to
statutory penalties.
ADEQ Response: The finding of the Auditor General is not agreed to, but the recommendation will be
implemented.
The Department does not disagree that it will need to process approximately 100 permits during each of the
next 4 ½ years to meet the 2004 deadline. We strongly disagree with the Auditor General’s calculations of
our past performance. The authorizing legislation for the APP program specifies the following permit
actions: 1) issuance of an individual permit, 2) major modification to an existing permit, and 3) clean closure
of a facility in lieu of issuing an APP. When all of these actions are counted, the correct assessment of
Department productivity in the APP program is that it issued 88 APP permit actions in FY1998 and 104
APP permit actions in FY1999. Based on that progress, with no other change, the Department would be
able to meet the anticipated number of permit actions by 2004. But as the Auditor General knows, the
Department will have its rules in place by January 1, 2001 for the Unified Water Quality Permit (UWQP)
program. Current discussions with stakeholders indicate that the UWQP rule could include as many as 20
categories of general permits, eliminating the need for an individual APP for entire classes of facilities. The
Department believes that the additional general permits will significantly reduce the number of facilities
required to obtain individual APPs.
The combination of additional general permits, decisions to deny applications (when appropriate),
implementation of permitting process efficiencies and continued staff training will provide more than enough
time to complete the required permitting prior to the deadlines.
- 3 -
APP FINDING II: ADEQ HAS NOT FOCUSED AQUIFER PROTECTION PERMIT
EFFORTS ON HIGH-RISK FACILITIES
Recommendation. ADEQ needs to take prompt action to address those facilities that have failed
to respond to the Department's requests to submit APP applications, and it should initiate this
action beginning with highest-risk/highest-priority facilities.
ADEQ Response: The finding of the Auditor General is not agreed to, but the recommendation will be
implemented.
The Department disagrees with the conclusion that the Department failed to protect either public health or
the environment by somehow not working on permits for facilities posing the highest risk to groundwater.
Existing groundwater permits issued by the Department of Health Services prior to the creation of the
Department in 1986, and by ADEQ prior to the effective date of the APP program, serve to adequately
protect groundwater until the more protective APP can be issued. It is a mistake to assume that facilities
with these legacy permits are polluting our groundwater supplies while they wait for an APP permit, and
that as a result of not having the APP, public health and the environment are somehow at risk.
Groundwater Quality Protection Permits (GWQPP) as a rule require discharge limits, monitoring and
reporting. For facilities operating under a Notice of Disposal (NOD), the Department has maintained an
aggressive inspection and compliance program. In fact since 1997, the Department has entered into
approximately 50 compliance and enforcement actions for GWQPP facilities and 100 compliance and
enforcement actions for NOD facilities. These actions made up 64% of all the compliance and enforcement
actions from 1997 to the present. While we agree with the Auditor General that the APP is a more
protective and desired permit, we disagree that the Department has somehow been negligent in its duty by
requiring additional time to issue APP permits for the 1,071 existing facilities with legacy permits transferred
to the Department at its creation.
When the Legislature passed A.R.S. §49-241.D, it specifically included two factors for prioritizing the Call-
In list: the degree of risk and a workplan by the director designed to process all applications by the
appointed time. The director clearly has the authority for his/her work plan to reflect the availability of staff
expertise to accomplish both timely permitting and a comprehensive effort to process the entire list. While it
is true that new, inexperienced staff were not given high-risk facilities to work on, the high risk facilities
were processed in as expeditious a manner as staffing would allow.
As well, the Auditor General is critical that ADEQ did not refer non-responders to compliance per ADEQ
policy. The Department opted to work with facilities to encourage and coach them through the application
process. Perhaps these facilities would have been better served if the Water Permits Section has referred
them to the Water Quality Compliance Section. Regulatory reform through the Licensing Time Frames
provisions now precludes the Department from providing this level of assistance. After August 13, 1999,
existing facilities who are unable to submit a complete application according to the specified timeframes will
be automatically referred to the Water Compliance Section.
- 4 -
APP FINDING III: INCOMPLETE AND INACCURATE DATA LIMITS ADEQ'S ABILITY
TO MANAGE ITS AQUIFER PROTECTION PERMIT PROGRAM
Recommendation. ADEQ should take the following steps to ensure the data in its databases is
accurate and complete enough to manage the Aquifer Protection Permit Program:
1. For the Water Permits and Certification Tracking Database, developing and implementing a
plan for cleaning up information already entered into the database and a process for monitoring
and verifying the accuracy and completeness of information entered in the future.
ADEQ Response: The finding of the Auditor General is agreed to and a different method of dealing
with the finding will be implemented.
The Department has submitted a request for funding construction of a new Permits database as a Critical
Issue in the Supplemental Budget process for FY2000-2001. If funding is received, we will proceed on a
parallel path to clean existing data while constructing a new database to ensure that when historic data is
transferred to the new application, it is accurate. If funding is not received, the Department will approach
construction of a new Permits database in smaller segments, and will focus only on new data; historic data
will not be transferred. Either method will ensure that only accurate data are contained within the new
database. Adequate controls will be included in either approach to ensure data are entered, and entered
correctly.
2. For the Licensing Timeframe Database, developing and utilizing management reports to
determine whether staff are entering complete data in a timely manner; and developing
procedures for verifying the accuracy of this data.
ADEQ Response: The finding of the Auditor General is agreed to and the audit recommendation will
be implemented.
APP FINDING IV: ADEQ NEEDS TO TAKE APPROPRIATE STEPS TO HELP ENSURE
APP PROGRAM IS ADEQUATELY FUNDED
Recommendation. ADEQ needs to use more appropriate means for ensuring adequate funding
for its Water Permits Section, which includes the APP program, by:
1. Billing facilities for work done throughout the permit process once the total charge exceeds the
initial application fee collected;
- 5 -
2. Revising its budgeting assumptions to better reflect the actual costs of operating the Water
Permits Section. As part of this process, the types of recoverable charges as well as the hourly
fee rate should be reassessed and ADEQ should modify its administrative rules accordingly;
3. Establishing productivity standards for professional staff who are responsible for issuing
permits and monitoring their productivity; and,
4. Identifying reasonable and actual costs for permitting facilities that may require long review
time, multiple permits, and/or several potential modifications to permits in the future and, if
necessary, develop recommendations to the Legislature for changing statutory fee caps.
ADEQ Response: The finding of the Auditor General is not agreed to, but the recommendation will be
implemented.
The Auditor General has exaggerated the significance of the fee cap waiver. The Department has been
plagued with an inadequate fee structure for several years. In FY1998, in an attempt to balance its budget,
the Department asked the mining sector, which historically has paid less than it costs to permit its facilities,
to agree to waive statutory fee caps in order to recover more of ADEQ’s costs to permit those facilities.
While legal and initiated for good cause, the Department soon recognized, several months later, that this
request could have the appearance of being inappropriate. As a result, it stopped this action in FY1999.
As the Auditor General well knows, the Department convened a stakeholder process to revise its Fee Rule
in April 1999. Since that time, the Program has: benchmarked APP fees with other states, analyzed our
efficiencies for reasonableness, and opened a docket for a rule revision.
As of November 9, 1999, the Department is developing scenarios to show how various revisions to the
Fee Rule (increase the types of recoverable services, incremental increases in the hourly rate as well as
implementation of permitting efficiencies) would impact the funding shortfall. The Department will continue
meeting with Stakeholders to obtain feedback prior to any proposed rule changes. Based upon the current
rulemaking schedule, revisions to the Fee Rule should be proposed by April, 2000.
- 6 -
WATER QUALITY ASSURANCE REVOLVING FUND (WQARF)
FINDING I. CHANGE IN LIABILITY APPROACH PRESENTS UNIQUE CHALLENGES
TO WQARF PROGRAM
ADEQ Response: The finding of the Auditor General is agreed to, and while no specific
recommendations were provided, ADEQ will continue to explore areas for
improvement.
ADEQ concurs with the report’s conclusion that it is, “too early to determine the full effect” of the 1997
changes to the Water Quality Assurance Revolving Fund (WQARF) statute. However, ADEQ does
believe “new” WQARF has brought about many positive changes to the traditional Superfund approach,
as summarized below:
C Unfair Liability Scheme: The Comprehensive Environmental Response, Compensation, and Liability
Act (CERCLA) establishes strict, joint and several liability, without regard to contribution. Prior to
1997, WQARF followed the same liability scheme, which placed the burden on an identified
responsible party to prove division of harm. Theoretically, one party could be held responsible for
100% of the costs of cleanup at a multi-party site. This led to significant and expensive litigation,
which substantially slowed the cleanups.
The new liability scheme under WQARF, one of “proportional liability”, is considered to be more
fair. Also, the Legislature provided increased funding to ADEQ for payment of “orphan shares”
(shares allocated to parties unable to pay their fair share).
C Impacts to Small Business: CERCLA and “old WQARF” have long been considered as having
adverse impacts to small businesses. New WQARF allows ADEQ to settle with small business
owners based on their ability to pay.
C Prolonged Impacts to Potentially Responsible Parties (PRPs): CERCLA and “old WQARF” have
been criticized for naming PRPs early in the process, and leaving the identified parties in “limbo” for
an extended period of time, during the remedial investigation/feasibility study. PRPs are not
formally identified in “New WQARF” until the allocation process approaches. Additionally, “New
WQARF” provides for PRP no-further action requests and options for early settlement.
C Community Involvement: Stakeholders (which includes ADEQ) felt that more and earlier input from
the community on remedy selection is needed, which is a departure from both CERCLA and “old
WQARF”. Considerable community dissent and concern often resulted in the federal and previous
state programs when the community was informed of proposed remedies very late in the process.
Extensive community involvement requirements have been built into “new WQARF”.
- 7 -
C Cleanup Schedule: CERCLA and WQARF have received extensive criticism about the length of
time needed to reach a cleanup decision at sites. Stakeholders felt that protracted negotiations with
potentially responsible parties during the remedial investigation (RI) phase of projects contributed to
a drawn-out process. “New WQARF” provides increased funding for fund-lead remedial
investigations/feasibility studies, to allow site characterization and remedy decisions to progress.
Prior to 1997, WQARF funding was inadequate. RIs often took on a “piece meal” approach,
where full site characterization would take many years and be funding dependent.
C Study Areas: Prior to 1997, many WQARF sites were identified on Superfund maps as “study
areas”. This created liability and property value concerns at properties not impacted by
contamination. “New WQARF” eliminates the study area concept and requires ADEQ to identify
only the areas of known contamination as the “sites”.
C Site Listings: Under “old WQARF”, there was more than one list of WQARF sites. The Priority
List included only sites where fund-lead remedial actions were necessary. The Priority List did not
address other sites of significant contamination being addressed by working parties. A WQARF
Registry has been created under “new WQARF”, which allows all WQARF sites to be viewed and
ranked together.
C Cleanup Standards: Both CERCLA and WQARF have historically required ground water cleanups
to meet Aquifer Water Quality Standards, without regard to technical feasibility or projected
beneficial uses of an aquifer. “New WQARF” requires ADEQ to consider technical practicality
and beneficial use.
While the full effect of “new” WQARF cannot be determined at this time, progress has been made. Some of
the highlights of the WQARF Program, since the implementation of “new” WQARF, are as follows:
C Establishment of the WQARF Advisory Board and WQARF implementation teams (comprised of
ADEQ staff and stakeholders to help fashion rules and guidance) has enabled ADEQ to coordinate
more actively with the public on expectations for, and needs of, the agency. The WQARF Advisory
Board continues to meet on a monthly basis and offers the public an opportunity to receive
information, ask questions and provide comments about the Program. Stakeholder participation is
vastly improved over that of “old” WQARF (pre-1997).
C ADEQ and WQARF Program stakeholders have been working together to draft rules and guidance
documents for the new WQARF Program. The interim rule (which addresses significant elements of
WQARF, including remedy selection) is expected to be effective by May 2000.
C The creation and continuous updating of the Superfund Programs Section Web page

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State of Arizona
Office
of the
Auditor General
PERFORMANCE AUDIT
Report to the Arizona Legislature
By Debra K. Davenport
Auditor General
November 1999
Report No. 99-21
DEPARTMENT
OF
ENVIRONMENTAL
QUALITY
Aquifer Protection Permit Program,
Water Quality Assurance
Revolving Fund Program, and
Underground Storage
Tank Program
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee
composed of five senators and five representatives. His mission is to provide independent and impar-tial
information and specific recommendations to improve the operations of state and local government
entities. To this end, he provides financial audits and accounting services to the state and political
subdivisions and performance audits of state agencies and the programs they administer.
The Joint Legislative Audit Committee
Senator Tom Smith, Chairman
Representative Roberta Voss, Vice-Chairman
Senator Keith Bee Representative Robert Burns
Senator Herb Guenther Representative Ken Cheuvront
Senator Darden Hamilton Representative Andy Nichols
Senator Pete Rios Representative Barry Wong
Senator Brenda Burns Representative Jeff Groscost
(ex-officio) (ex-officio)
Audit Staff
Melanie Chesney—Manager
and Contact Person (602) 553-0333
Natalie Coombs—Audit Senior
Jay De Pree—Staff
Ryan Curtis—Staff
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410
Phoenix, AZ 85018
(602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.auditorgen.state.az.us
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
November 17, 1999
Members of the Legislature
The Honorable Jane Dee Hull, Governor
Ms. Jaqueline E. Schafer, Director
Arizona Department of Environmental Quality
Transmitted herewith is a report of the Auditor General, A Performance Audit of the
Department of Environmental Quality (ADEQ): the Aquifer Protection Permit program,
the Water Quality Assurance Revolving Fund program, and the Underground Storage
Tank program. This audit was conducted pursuant to Laws 1998, Chapter 298, §17,
and under the authority vested in the Auditor General by Arizona Revised Statutes
(A.R.S.) §41-1279.03.
This report addresses issues related to three Arizona Department of Environmental
Quality (ADEQ) programs that are responsible for protecting the State’s critical water
resources from contamination. Specifically, a number of problems were identified with
the Aquifer Protection Permit program, which is designed to help prevent groundwater
contamination from occurring. Based on its historical performance, the program is
unlikely to meet statutory permit processing deadlines, and it has not focused its
attention on ensuring that high-risk facilities are among the first facilities to obtain
required permits. In addition, ADEQ’s ability to manage the program is limited
because data is inaccurate and incomplete. Further, although the amount businesses
can be required to pay for aquifer protection permit processing is capped in statute,
ADEQ has inappropriately solicited additional permit processing monies from some
businesses it regulates.
This report also discusses recent changes to the Water Quality Assurance Revolving
Fund (WQARF) program, including some of the challenges ADEQ now faces with the
shift from a joint to a proportional liability standard. Finally, the report provides
November 17, 1999
Page -2-
information on the progress ADEQ has made toward implementing recommendations
made in a 1998 performance audit of the Underground Storage Tank program (Auditor
General Report No. 98-4).
As outlined in its response, ADEQ does not agree with all of our findings, but has
agreed to implement all of our recommendations. In particular, ADEQ disagrees with
our conclusion that it will not meet statutory deadlines for issuing APP permits.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on November 18, 1999.
Sincerely,
Debbie Davenport
Auditor General
Enclosure
i
OFFICE OF THE AUDITOR GENERAL
SUMMARY
The Office of the Auditor General has conducted a performance
audit of three programs within the Department of Environ-mental
Quality (ADEQ): the Aquifer Protection Permit program,
the Water Quality Assurance Revolving Fund program, and the
Underground Storage Tank program. The audit was conducted
pursuant to Laws 1998, Chapter 298, §17, and under the author-ity
vested in the Auditor General by Arizona Revised Statutes
(A.R.S.) §41-1279.03.
The three programs share a common goal of protecting the
State’s critical water resources from contamination. The Aquifer
Protection Permit program helps ensure that contamination does
not reach the State’s groundwater by regulating discharges from
facilities such as mines, industrial facilities, and wastewater
treatment plants. If hazardous substances threaten to, or actually
do, contaminate groundwater, the Water Quality Assurance
Revolving Fund program oversees investigation and cleanup
activities and attempts to recover the associated costs from pol-luters.
The Underground Storage Tank program regulates un-derground
storage tanks and, when those tanks leak and con-taminate
soil and groundwater, it oversees and helps to fund
various cleanup activities.
The audit identified four problems affecting ADEQ’s ability to
manage the Aquifer Protection Permit program. Under this pro-gram,
ADEQ issues permits that govern the release of potential
contaminants from mines and other facilities, such as wastewater
treatment plants. The four problems involve:
1) The program’s likely inability to meet statutory deadlines for
issuing permits,
2) The need to ensure high-risk facilities obtain required aquifer
protection permits,
Aquifer Protection
Permit Program
All three programs share
a goal of protecting Ari-zona’s
water.
Summary
ii
OFFICE OF THE AUDITOR GENERAL
3) Incomplete and inaccurate data in the information system for
administering the program, and
4) The need to ensure the program has adequate funding.
Compliance with Statutory APP
Processing Deadlines Is Doubtful
(See pages 9 through 13)
ADEQ’s ability to meet statutory deadlines for processing aqui-fer
protection permits is doubtful. Current statutory deadlines
call for aquifer protection permits to be issued to non-mining
facilities by 2004 and to mining facilities by 2006. To meet the
2004 deadline, the program would need to nearly double the
number of permits it issues each year. Because the program con-tinues
to have persistent staffing and training problems, such a
pace is unlikely. Auditor General staff first identified problems
with turnover and vacancies in 1993. Management has not es-tablished
a formal training process to help ensure that new and
existing staff have the knowledge needed to make consistent and
timely decisions.
If it cannot issue permits at a faster pace, ADEQ’s attention may
be diverted primarily to addressing new permits rather than
those it has already received. A recent law requires state agencies
to refund fees and pay penalties to the General Fund if they can-not
meet processing deadlines for applications received after
August 13, 1999. Because of these penalties, ADEQ may choose
to focus on processing newer applications first and may further
delay processing older applications that are not subject to penal-ties.
ADEQ Has Not Focused Aquifer Protection
Permit Efforts on High-Risk Facilities
(See pages 15 through 17)
ADEQ has not ensured that facilities posing the highest risk to
the environment were the first to be required to obtain aquifer
protection permits. Beginning in 1992, the law directed ADEQ to
establish risk-based priorities for all known facilities that may be
releasing pollutants into the groundwater. To give its staff more
To meet statutory dead-lines,
the Program will
need to double its perform-ance.
Summary
iii
OFFICE OF THE AUDITOR GENERAL
experience before tackling all the high-risk facilities, ADEQ
elected to use an approach that focused on a combination of
low-, medium-, and high-priority facilities. However, slow prog-ress
in issuing permits has meant that facilities with some of the
most serious potential for groundwater pollution may have been
allowed to forgo upgrading pollution control efforts for years.
ADEQ has also not taken action against facilities that have ig-nored
the requirement to submit permit applications. Nearly 40
percent of all facilities required to submit permit applications
since 1995 have failed to do so.
Incomplete and Inaccurate
Data Limits ADEQ’s Ability to
Manage Its Aquifer Protection
Permit Program
(See pages 19 through 24)
Numerous problems with computerized data need to be cor-rected
to enable ADEQ to effectively manage the Aquifer Pro-tection
Permit program. Currently, the program’s formal track-ing
database does not provide accurate and complete informa-tion
about such basic things as the number of permits issued, the
time it takes to issue permits, and the status of permits in proc-ess.
This missing information affects ADEQ’s ability to deter-mine
if processing times are met, identify where bottlenecks are
occurring, and ensure that all required fees are collected. To en-sure
that these problems do not continue to impact the program
and the Department, ADEQ needs to make necessary corrections
and establish controls for the data systems it is currently devel-oping
or upgrading.
ADEQ Needs to Take Appropriate
Steps to Help Ensure APP Program
Is Adequately Funded
(See pages 25 through 30)
ADEQ has taken an inappropriate action to minimize funding
problems in its Water Permits Section, which is responsible for
issuing aquifer protection permits. State law requires ADEQ to
set fees that are reasonably related to the cost of processing
ADEQ has not taken
action against facilities that
have not applied for per-mits.
Summary
iv
OFFICE OF THE AUDITOR GENERAL
permits, but it also establishes a maximum amount the appli-cants
can be required to pay. Anticipating a funding shortfall,
ADEQ, in fiscal year 1998, solicited additional permit-processing
monies from some applicants above the amount established in
statute. Two applicants have signed agreements that make
ADEQ eligible to receive up to $161,700 in additional payments
to continue work on the permits. Although state law does not
preclude ADEQ from seeking higher fees to cover its costs, such
agreements have the appearance of compromising ADEQ’s in-dependence
and could result in inequitable treatment of appli-cants
and permit holders.
Rather than soliciting additional monies from businesses that the
Department regulates, ADEQ should pursue more appropriate
means of ensuring that the program is adequately funded. Spe-cifically,
ADEQ should work to change internal practices that
may adversely affect its revenue flow. ADEQ could also study
the impact of the fee caps, and once reasonable costs are identi-fied,
make recommendations to the Legislature about the statu-tory
fee caps, if necessary.
Change in Liability Approach Presents
Unique Challenges to WQARF Program
(See pages 39 through 45)
Arizona’s newly restructured Water Quality Assurance Revolv-ing
Fund, which is the State’s program designated to clean up
historically contaminated groundwater, is still in the process of
adjusting to a significant restructuring the Legislature made in
1997. Under this restructuring, ADEQ can no longer identify a
single party who contributed to pollution at a site and hold that
party responsible. It must now use its best efforts to identify all
contributing parties, allocate responsibility proportionately
among them, and determine each party’s ability to pay. This new
liability standard, known as proportional liability, is considered
more equitable because one party is not held solely responsible
for all cleanup costs unless it is solely responsible for the con-tamination.
As part of the restructuring, the Legislature also
Water Quality Assurance
Revolving Fund Program
ADEQ solicited addi-tional
payments from
applicants.
Summary
v
OFFICE OF THE AUDITOR GENERAL
provided a more stable source of funding. Past cleanup efforts
had been hampered by uncertain funding.
It is too early to determine the full effect of the changes to Ari-zona’s
program. However, implementing the proportional li-ability
standard poses some challenges. For example, increased
time and effort is needed to identify multiple parties who may
have polluted a site and to determine how much of the cleanup
costs each party should bear. In addition, if parties are unable to
pay their fair share, the State is now responsible for paying for
these “orphan” shares. These challenges are unique to Arizona’s
program in that cleanup programs operated by the federal gov-ernment
and by other states have less complex requirements for
identifying parties responsible for contamination and recovering
cleanup costs. Because the new procedures have been in place
for a relatively short time, not enough progress has been made to
assess their full impact.
Continued Efforts Needed to Address
Efficiency and Funding Issues in the
Underground Storage Tank Program
(See pages 53 through 58)
The Underground Storage Tank Program has made progress in
improving its performance since a 1998 Auditor General per-formance
audit, but continued work is needed. ADEQ has be-come
more efficient in handling leaking underground storage
tank cases, reducing a substantial backlog of site characterization
plans and closure requests that required ADEQ approval. How-ever,
improvements are still needed in the program’s computer
database for tracking leaking underground tank sites.
Action is also needed to address the lack of funding available for
approved cleanups. At the time of the 1998 audit, ADEQ had $48
million in approved but unpaid claims. This number had
climbed to more than $55 million by the end of fiscal year 1999.
In addition, at the end of fiscal year 1999 there were also 541
pending claims requesting a total of more than $22 million. The
Underground Storage
Tank Program
The amount of unpaid
claims has grown to $55
million.
It is too early to evaluate
the impact of propor-tional
liability.
Summary
vi
OFFICE OF THE AUDITOR GENERAL
1998 report analyzed several ways to address the issue: raising
revenues, limiting claims, eliminating the Fund, and finding
ways to reduce the Fund’s administrative expenses. Since the
1998 report, some changes and developments have occurred, but
the basic situation remains much the same.
A final area in which progress has been slow is in establishing
risk-based corrective action rules that would allow efforts to
clean up leaking underground storage tanks to focus on those
sites posing the greatest danger to the public, although the Leg-islature
has required ADEQ to establish such rules by January
2000. ADEQ recently proposed these rules and anticipates a May
2000 effective date.
Table of Contents
vii
OFFICE OF THE AUDITOR GENERAL
TABLE OF CONTENTS
Page
Introduction and Background ..................... 1
Introduction and Background ..................... 7
Finding I: Compliance with Statutory
APP Processing Deadlines
Is Doubtful................................................ 9
Permit Processing Affected
by Persistent Staffing and
Training Problems .................................................... 10
ADEQ Is Unlikely to
Meet Extended Permit
Processing Deadlines................................................ 11
Ability to Meet Deadline
May Be Further Impacted
by New Permit Processing
Requirements............................................................ 12
Recommendations .................................................... 13
Finding II: ADEQ Has Not Focused
Aquifer Protection Permit
Efforts on High-Risk Facilities ................ 15
ADEQ Did Not Focus Permitting
Efforts on High-Risk Facilities First ......................... 15
ADEQ Has Not Taken Action
Against Nonresponsive Facilities ............................ 16
Recommendation..................................................... 17
Aquifer Protection
Permit Program
Table of Contents
viii
OFFICE OF THE AUDITOR GENERAL
TABLE OF CONTENTS (Cont’d)
Page
Finding III: Incomplete and Inaccurate
Data Limits ADEQ’s Ability
to Manage Its Aquifer
Protection Permit Program ..................... 19
Basic Information About APP
Workload and Processing Times
Is Unavailable, Inaccurate ........................................ 19
Missing Data Affects
Ability to Manage Program ..................................... 21
Efforts Needed to Prevent
Future Data Problems .............................................. 22
Recommendations .................................................... 24
Finding IV: ADEQ Needs To Take
Appropriate Steps to Help
Ensure APP Program
Is Adequately Funded.............................. 25
Department Sought Additional
Monies from Some Applicants ................................ 25
ADEQ Should Use More
Appropriate Means of
Covering Its Costs..................................................... 27
Recommendations .................................................... 30
Aquifer Protection
Permit Program (Cont’d)
Table of Contents
ix
OFFICE OF THE AUDITOR GENERAL
TABLE OF CONTENTS (Cont’d)
Page
Introduction and Background ..................... 33
Finding I: Change in Liability
Approach Presents Unique
Challenges to WQARF Program............. 39
WQARF Restructured
in 1997 ....................................................................... 39
Proportional Liability Poses
New Challenges to WQARF.................................... 40
Additional Time and
Resources Required .................................................. 41
Other States’ Liability Standards
Differ from Arizona’s ............................................... 44
Too Early to Judge
Full Effect of Changes............................................... 45
Introduction and Background ..................... 49
Finding I: Continued Efforts Needed
to Address Efficiency and Funding
Issues in the Underground Storage
Tank Program........................................... 53
1998 Performance Audit Identified
Concerns in Several Areas........................................ 53
Water Quality Assurance
Revolving Fund Program
Underground Storage
Tank Program
Table of Contents
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OFFICE OF THE AUDITOR GENERAL
TABLE OF CONTENTS (Cont’d)
Page
Finding I: (Concl’d)
Program Has Increased
Efficiency, but Management
Information Needs Attention................................... 54
Action Still Needed to Address
State Assurance Fund Problems.............................. 55
ADEQ Should Continue to
Implement Risk-Based Approach............................ 56
Recommendations .................................................... 58
Figures
Figure 1 Designated Contaminated Sites ................. 34
Figure 2 Arizona Department of Environmental Quality
Restructured WQARF Process for Cleaning
Up Contaminated Sites and Current Status
of Sites in Process
As of August 15, 1999.................................. 36
Underground Storage
Tank Program (Concl’d)
Table of Contents
xi
OFFICE OF THE AUDITOR GENERAL
TABLE OF CONTENTS (Concl’d)
Page
Tables
Table 1 Arizona Department of Environmental Quality
Water Quality Assurance Revolving Fund
Statement of Revenues, Expenditures, and
Changes in Fund Balance
Years Ended June 30, 1997, 1998, and 1999
(Unaudited)................................................... 38
Table 2 Arizona Department of Environmental Quality
State Assurance Fund
Statement of Revenues, Expenditures, and
Changes in Fund Balance
Years Ended June 30, 1997, 1998, and 1999
(Unaudited)................................................... 50
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OFFICE OF THE AUDITOR GENERAL
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1
OFFICE OF THE AUDITOR GENERAL
Common Goal of
APP, WQARF, and
UST:
Strive to protect
water resources
INTRODUCTION AND BACKGROUND
The Office of the Auditor General has conducted a performance
audit of three programs within the Department of Environ-mental
Quality (ADEQ): the Aquifer Protection Permit (APP)
program, the Water Quality Assurance Revolving Fund
(WQARF) program, and the Underground Storage Tank (UST)
program. The audit was conducted pursuant to Laws 1998,
Chapter 298, §17, and under the authority vested in the Auditor
General by Arizona Revised Statutes (A.R.S.) §41-1279.03.
The APP, WQARF, and UST programs
all share the common goal of protecting
the State’s critical water resources from
contamination. The APP program is
designed to help prevent pollutants from
reaching the soil and groundwater;
however, if contamination does occur,
both WQARF and UST are responsible for overseeing cleanup
efforts. The APP program serves as the cornerstone of the State’s
groundwater protection efforts by regulating facilities, such as
mines and wastewater treatment plants, to ensure that any pol-lutants
they discharge are minimized. WQARF, on the other
hand, is responsible for cleaning up hazardous substances that
were handled or disposed of improperly and contaminated or
threaten to contaminate groundwater. It also works to recover
the associated cleanup costs from polluters. Similarly, the UST
program regulates underground storage tanks and, when those
tanks leak, it oversees and helps to fund various cleanup activi-ties.
Audit Scope, Methodology,
and Limitations
This special audit presents recommendations in five areas:
n Resolving staffing and training problems that hamper the
Department’s ability to meet statutory deadlines for proc-essing
permits.
Introduction and Background
2
OFFICE OF THE AUDITOR GENERAL
n Focusing permit efforts on those facilities with the highest
potential for contaminating the groundwater.
n Improving the management information systems for the
Aquifer Protection Permit program.
n Developing a reasonable and appropriate course of action for
minimizing funding shortfalls.
n Improving various aspects of the UST program’s manage-ment.
In addition, the report discusses the WQARF program’s progress
since it was restructured in 1997. The discussion of this issue
does not include recommendations because not enough time has
elapsed to evaluate the full effect of the changes.
Throughout the assignment, Auditor General staff encountered a
number of limitations in obtaining information through data
analysis and interviews about the programs’ performance and
progress.
n Computerized data for aquifer protection permits is in-complete—
Computerized data about permits is recorded in
both the formal Water Permits and Certifications Tracking
Database as well as in separate informal spreadsheets main-tained
by individual staff. Staff who created the spreadsheets
indicated that the spreadsheets may not contain information
about all permits; however, auditors found that information
in the spreadsheets was still more complete than in the for-mal
database.
In addition, auditors attempted to determine whether
ADEQ’s formal water permits database could be used to de-termine
how long it took to complete specific steps in the
permitting process. Auditors reviewed information con-tained
in the system for a total of 99 issued permits and de-termined
that staff generally failed to record the necessary
Introduction and Background
3
OFFICE OF THE AUDITOR GENERAL
dates in the system.1 Specifically, the database contained
complete information about critical steps in the process for
only 17 of the 99 permits.
n Computerized data is inaccurate—Auditors compared the
formal permit tracking database and the spreadsheets to a
random sample of 63 application and permit files. The review
found that the application receipt and permit issue dates
were inaccurate in both the formal database and the spread-sheets.
Consequently, auditors were unable to use either
system to determine the length of time it takes ADEQ to issue
aquifer protection permits.
Accurate data about backlogs in the UST program is also un-available
since the program has yet to correct and validate all
of the information in its tracking database (USTracks) as rec-ommended
in a 1998 Auditor General review (Report No. 98-
4).
n Reliable explanations were difficult to obtain—In several
instances auditors could not obtain explanations about
ADEQ’s historical practices, and how ADEQ interprets its
statutes and rules, because there has been turnover of man-agement
staff several times within the past year. In addition,
in the WQARF program, it was difficult to determine
whether ADEQ was meeting its statutory responsibilities,
since it has not developed sufficient policies and procedures
to guide staff. For example, to answer the basic question of
when a contaminated site is officially placed on the WQARF
registry, auditors spoke to six different staff, including the
WQARF program manager, but were unable to obtain a reli-able
answer. This date is critical since it marks the beginning
of several steps ADEQ must take to begin site cleanup, at
least one of which has a statutory deadline. In addition, deci-sions
about WQARF program implementation were difficult
to document since the program did not adequately maintain
required WQARF Advisory Board meeting minutes.
1 Includes the 63 randomly selected permits issued between June 1991 and
April 1999, as well as 36 permits applied for and issued since January
1997, which was about the time the formal database was upgraded to
begin tracking dates for steps in the permit process.
Introduction and Background
4
OFFICE OF THE AUDITOR GENERAL
In conducting the audit, auditors also interviewed representa-tives
from the EPA and equivalent programs in other states;
environmental experts; representatives from stakeholder groups
including municipalities, mining, and power generation; and
permit applicants. Auditors also attended advisory board and
committee meetings relating to the programs. In addition, fed-eral
environmental regulations, state statutes, and rules relating
to the programs were reviewed. Auditors also reviewed such
documents as ADEQ’s annual reports and other publications
that it provides to applicants, as well as a 1995 fee study com-pleted
for the APP program by Arthur Andersen & Co., SC.
This audit was conducted in accordance with government
auditing standards.
The Auditor General and staff express appreciation to the Di-rector
and staff of the Department of Environmental Quality for
their cooperation and assistance throughout the audit.
5
OFFICE OF THE AUDITOR GENERAL
AQUIFER PROTECTION
PERMIT PROGRAM
6
OFFICE OF THE AUDITOR GENERAL
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7
OFFICE OF THE AUDITOR GENERAL
INTRODUCTION AND BACKGROUND
The Aquifer Protection Permit (APP) program is a critical com-ponent
of the State’s groundwater protection efforts since it is-sues
permits to prevent groundwater contamination from occur-ring.
Approximately 65 percent of the population in Arizona
utilizes groundwater for drinking water. In fact, many commu-nities
in the State depend on groundwater as their principal
source of drinking water. In recognition of this fact, the Envi-ronmental
Quality Act of 1986 was enacted to establish a com-prehensive
groundwater management program in Arizona. The
Act required ADEQ to begin regulating discharges of pollutants
that may adversely impact aquifers, which are underground
layers of sand, gravel, or porous rock where water collects.
The APP program is responsible for issuing permits to regulate
pollutants discharged by facilities including many new and ex-isting
mines, wastewater treatment plants, and industrial facili-ties.
Applicants must demonstrate that they are using the best
available demonstrated control technology to ensure that water
quality standards will not be violated or that the groundwater
will not be further degraded. The permits frequently contain
monitoring requirements to ensure that the facility remains in
compliance with APP provisions, providing an additional way
of protecting the public. New facilities must obtain a permit be-fore
they can begin operations. Facilities that were operating
under other permits or agreements may continue to do so while
their aquifer protection permit applications are being processed.
Since 1992, the program has issued approximately 296 individual
aquifer protection permits and has an estimated 200 more permit
applications in process.
Staffing and funding—Three units within ADEQ’s Water Per-mits
Section are responsible for most APP-related activities, in-cluding
issuing permits, assessing the impact of modifications
made to permitted facilities, and approving closure plans for
facilities no longer in operation. The three units are approved to
employ 28 full-time professional staff, not including supervisors.
Several of these staff have engineering or hydrology back-grounds
to enable them to assess permit application documen-
About 65 percent of
Arizonans use
groundwater for
drinking.
Introduction and Background APP Program
8
OFFICE OF THE AUDITOR GENERAL
tation to determine whether it demonstrates that pollutants will
be minimized or, in some cases, eliminated. These staff also per-form
other duties such as providing technical assistance to appli-cants
or to individuals who may later require a permit.
The Water Permits Section received revenues of approximately
$2.9 million in fiscal year 1999. These monies are used to support
several activities, including issuing aquifer protection permits.
About 43 percent of the revenues in fiscal year 1999 were from
the General Fund and about 17 percent were from federal grants.
The remaining 40 percent is from various fees, including annual
registration fees paid by permit holders. Other fees include those
paid by applicants for permit processing. Currently, ADEQ is
allowed by rule to charge applicants $49 per hour to process APP
applications. However, state law limits the amount that appli-cants
must pay. Permit holders cannot be required to pay more
than $16,000 per permit or $25,000 for a site where multiple per-mits
may be required, such as a mine. State agencies, such as the
Department of Corrections, are exempt from paying processing
fees.
9
OFFICE OF THE AUDITOR GENERAL
FINDING I COMPLIANCE WITH STATUTORY
APP PROCESSING DEADLINES
IS DOUBTFUL
ADEQ’s ability to meet new statutory deadlines for processing
aquifer protection permits is doubtful, even under the extended
schedule granted by the Legislature in 1999. Persistent problems
with staffing and training have not been corrected. Because
ADEQ cannot comply with the new deadlines unless it essen-tially
doubles the number of permits issued each year, such con-tinued
problems can only hamper its ability to meet the new
deadlines. In addition, because a new statute has created finan-cial
penalties for taking too long to issue permits applied for after
August 13, 1999, ADEQ may further delay issuing permits that
are not subject to the law.
In 1992, the Legislature required ADEQ to identify facilities that
could be contaminating the State’s groundwater and, if war-ranted,
to begin regulating them through aquifer protection
permits. Initially, the deadline for issuing permits was set for
2001. However, in 1999 the Legislature granted an extension
until 2004 (for non-mining facilities) and 2006 (for mining opera-tions).
Issuing aquifer protection permits to such facilities is
ADEQ’s most effective way to ensure that facilities are using the
best available technologies for controlling pollutant discharge. In
addition, without such permits in place, ADEQ may lack the
information needed to determine if groundwater is being con-taminated.
These permits can require facilities to upgrade pollu-tion
control efforts and to routinely monitor pollutants in their
discharges and groundwater and report the results to ADEQ. In
contrast, facilities that have not obtained such permits may not
be using the best available technology for controlling pollutants.
In 1999 the Legislature
granted ADEQ an extension
for issuing permits.
Finding I APP Program
10
OFFICE OF THE AUDITOR GENERAL
Permit Processing Affected
by Persistent Staffing and
Training Problems
ADEQ’s ability to meet the new deadlines is affected by two
long-standing and persistent problems. ADEQ’s process for
issuing permits was analyzed in a 1993 Auditor General report
(Report No. 93-5) and a number of factors that were contributing
to delays were identified. Two of these factors remain unre-solved:
n The program continues to experience staff turnover and va-cancies,
which impacts its ability to ensure timely and effi-cient
permit processing.
n In addition, management also has not developed a formal
staff training program to provide additional guidance and
direction to staff.
Staffing problems still exist—Turnover and vacancy problems
were apparent when the 1993 report was issued. At that time,
more than 60 percent of project officers responsible for process-ing
permits had been with the APP program a year-and-a-half or
less. In addition, two of three supervisors who oversaw the proc-ess
had been with the program for fewer than six months. To
resolve the problems, the 1993 report recommended that ADEQ
determine whether project officer positions needed to be up-graded
to improve the staff’s level of technical knowledge and
experience. It also suggested establishing engineering support
staff positions to assist with reviewing the technical portions of
permit applications.
ADEQ has taken steps to reduce turnover and vacancies, but
these problems persist. In 1998, ADEQ received salary increases
for its hydrologists, and it has increased recruiting salaries for
both professional and clerical staff in the APP program. How-ever,
it has not been successful in obtaining salary increases for
most existing APP staff, such as project officers and engineers. As
of July 1999, 7 of the program’s 28 professional staff positions
designated for aquifer protection permit processing were vacant.
Of the 21 staff in place, 6 had been with the program 8 months or
fewer. In addition, there has been turnover in each of the three
supervisor positions at least once during the year. Turnover in
Seven of the 28 profes-sional
staff positions were
vacant.
Finding I APP Program
11
OFFICE OF THE AUDITOR GENERAL
these staff and supervisor positions leads to permit processing
delays, since reassigning applications can result in work being
duplicated.
Formal training is still lacking—Program managers have yet to
develop a formal training program to guide and direct staff. The
1993 report indicated that ADEQ could have improved permit
processing timeliness by taking steps such as establishing formal
training for staff who process aquifer protection permits. ADEQ
management still has not developed a formal structured training
program which, according to one project officer, could improve
consistency and give staff the confidence to make timely deci-sions
about permit applications. Some APP staff indicate that the
current informal mentoring system is inadequate, and the lack of
formal training can limit their ability to ensure that permits are
processed consistently and efficiently.
ADEQ Is Unlikely to Meet Extended
Permit Processing Deadlines
Because these staffing and training problems have not been re-solved,
ADEQ is unlikely to meet its new deadlines for regulat-ing
facilities that could be polluting the State’s groundwater.
Although ADEQ staff indicate that it is possible to meet the ex-tended
deadlines, the program’s past performance does not sup-port
this assessment. Since the initial statutory deadline became
effective in 1992, the Department has issued 296 individual aqui-fer
protection permits. According to analysis of Department
records, at least 255 more non-mining facilities have not yet re-ceived
aquifer protection permits.1 To process these 255 permits
as well as the estimated 50 new aquifer protection permit appli-cations
received each year, ADEQ will need to process approxi-mately
106 permits during each of the next four-and-a-half years
1 Includes 127 non-mining facilities that should have submitted aquifer
protection permit applications between January 1995 and July 1999, re-duced
by one-third to account for the possibility that all these facilities
may not require an individual aquifer protection permit. Also included
are 170 aquifer protection permit applications in process. Calculation
does not include 28 aquifer protection permit applications in process and
5 overdue aquifer protection permit applications from mining opera-tions.
Lack of formal training for
staff may delay permit
process.
Finding I APP Program
12
OFFICE OF THE AUDITOR GENERAL
to meet its 2004 deadline.1 However, in 1998 the program issued
only 58 individual permits to non-mining facilities, which was
the highest number issued in any one year since 1992.
Ability to Meet Deadline
May Be Further Impacted
by New Permit Processing
Requirements
ADEQ’s ability to meet its deadlines for permitting facilities may
be further impacted by a statute that establishes penalties for
slow processing of applications received after August 13, 1999.
For permit applications received after this date, ADEQ must
meet specific deadlines for such activities as determining
whether an application is complete (for this step, the period typi-cally
allowed is 35 days). If ADEQ does not meet the time
frames, it is required to refund fees. It also must pay a penalty to
the General Fund equivalent to 1 percent of the refunds for each
month that it fails to make a decision to issue or deny a permit.
Because of these penalties, ADEQ may choose to focus on proc-essing
newer applications first and may delay processing appli-cations
that are not subject to penalties. To ensure that the appli-cations
that are not subject to statutory processing time frames
do not languish, ADEQ needs to develop a plan for addressing
these applications and monitoring progress to ensure timely
issuance of permits.
1 ADEQ anticipates having new Unified Permit rules in place in early
2001, which may reduce the number of aquifer protection permits
that need to be processed.
Finding I APP Program
13
OFFICE OF THE AUDITOR GENERAL
Recommendations
1. ADEQ should continue working to upgrade professional
positions within the APP program as it sees necessary.
2. ADEQ needs to develop and implement a formal training
process for staff who process aquifer protection permits to
help ensure that permits are processed efficiently and con-sistently.
3. ADEQ management needs to develop and implement a plan
for addressing aquifer protection permits in process to ensure
timely issuance of permits that are not subject to statutory
penalties.
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OFFICE OF THE AUDITOR GENERAL
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15
OFFICE OF THE AUDITOR GENERAL
FINDING II ADEQ HAS NOT FOCUSED
AQUIFER PROTECTION PERMIT
EFFORTS ON HIGH-RISK FACILITIES
ADEQ has not ensured that some facilities obtain aquifer protec-tion
permits to further reduce the risk of these facilities releasing
unacceptable levels of pollutants into the State’s groundwater.
Beginning in 1992, the law required ADEQ to prioritize all
known facilities that may be releasing groundwater pollutants.
Although the Department did develop a prioritized list of facili-ties,
its workplan did not concentrate on the highest-priority
facilities. Furthermore, at least 132 of the facilities that ADEQ has
contacted about submitting an application have not done so.
Some have ignored the requirement for as many as four years.
ADEQ Did Not Focus Permitting
Efforts on High-Risk Facilities First
ADEQ has not ensured that facilities posing the highest risk to
the public and the environment were the first to be required to
obtain aquifer protection permits. Instead, ADEQ elected to use
an approach that focused on a combination of low-, medium-,
and high-priority facilities.
ADEQ required to prioritize facilities based on risk—A.R.S. §49-
241-D, effective in 1992, required ADEQ to prioritize all known
facilities required to obtain an aquifer protection permit, basing
the priority on the level of risk posed to the public. The initial list
that ADEQ developed had entries with risk-based priorities
ranging from a low of 0 to a high of 99. All of the facilities ap-pearing
on this “call-in” list were statutorily required to obtain
permits by 2001, and ADEQ’s work plan required a set number
of facilities to submit applications each year up through 1999.
The facilities appearing on the call-in list for each year were to
receive a letter from ADEQ notifying them that they must sub-mit
an application and providing a due date for the facility’s
response. As of December 1999, all facilities were to have re-ceived
a notice and submitted an application.
Finding II APP Program
16
OFFICE OF THE AUDITOR GENERAL
ADEQ did not follow the priorities list—When ADEQ began
calling in facilities for permitting, it did not require the highest-priority
facilities to respond first. Instead, ADEQ requested ap-plications
from a mix of low-, medium-, and high-priority facili-ties
each year. As a result, some facilities that were not required
to submit applications until 1999 had higher risk priorities than
facilities called in previous years. For example, in 1996 at least 8
facilities were rated at 13 or less, while in 1999 approximately 7
facilities had a rating of 55 or higher. By delaying the permitting
process for these high-risk facilities, ADEQ potentially allowed
some facilities to forgo upgrading pollution control efforts for
several years.
According to ADEQ staff, it was felt that the applications for
high-risk facilities would take a long time to process, and focus-ing
only on these applications could make ADEQ unable to meet
its statutory deadlines.1 At the time the call-in list was imple-mented,
management felt that existing staff was insufficient and
too inexperienced to process applications from all high-risk fa-cilities,
such as mines, within these deadlines. However, ADEQ
has still been unable to meet its initial 2001 deadline for issuing
all permits. In fact, in 1999 it received an extension allowing it
until 2004 to complete the processing of all non-mine APPs, and
until 2006 for mine APPs (for further discussion, see Finding I,
pages 9 through 13).
ADEQ Has Not Taken Action
Against Nonresponsive Facilities
ADEQ has also not taken action against facilities that have ig-nored
the requirement to submit aquifer protection permit appli-cations.
More than 40 percent of all the facilities required to sub-mit
permit applications since 1995 have failed to do so. Between
January 1, 1995 and July 1, 1999, a total of 282 facilities were re-quired
to submit APP applications; however, at least 132 have
not done so. Even more facilities may be delinquent, but infor-mation
about the status of facilities called in between 1992 and
1995 is not readily available. Of the 132 known delinquent facili-
1 The statute establishing the call-in list required ADEQ to issue APPs to
one-third of the facilities on the list by 1995; two-thirds by 1998, and all
permits by 2001.
Since 1995, 132 facilities
have failed to submit re-quired
permit applications.
Some facilities with the
most serious potential for
groundwater pollution
were not permitted first.
Finding II APP Program
17
OFFICE OF THE AUDITOR GENERAL
ties, many have ignored the requirement to apply for an APP for
years. For example, applications from 18 facilities have been
overdue since 1995, and applications for 34 others have been
overdue since 1996.
This lack of action is not in keeping with ADEQ’s stated policies.
According to ADEQ policy, the Water Permits Section should
have sent these delinquent facilities a follow-up letter within one
week of the application due date. If the facilities did not respond
to the second letter after 30 days, they should have been referred
to the Water Quality Compliance Section for enforcement action.
The Compliance Section would then send an enforcement letter,
and if facilities are still nonresponsive, the section can seek pen-alties
of up to $25,000 per day. According to data provided by
the Water Permits Section, between January 1995 and July 1999
one facility was submitted to the Compliance Section for failure
to respond. However, this delinquent facility was not turned
over to the Compliance Section until the application was nearly
three years past due. Further, the Compliance Section has no
record of actually receiving this case.
Recommendation
1. ADEQ needs to take prompt action to address those facilities
that have failed to respond to the Department’s requests to
submit APP applications, and it should initiate this action be-ginning
with highest-risk/highest-priority facilities.
18
OFFICE OF THE AUDITOR GENERAL
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19
OFFICE OF THE AUDITOR GENERAL
FINDING III INCOMPLETE AND INACCURATE
DATA LIMITS ADEQ’S ABILITY
TO MANAGE ITS AQUIFER
PROTECTION PERMIT PROGRAM
Numerous problems with computerized data need to be cor-rected
to enable ADEQ to effectively manage the APP program.
Currently, the program’s formal tracking database does not pro-vide
accurate and complete information about such basic things
as the number of aquifer protection permits issued, the time it
takes to issue permits, and the status of permits in process. This
missing information affects ADEQ’s ability to determine if proc-essing
times are met, identify where bottlenecks are occurring,
and ensure that all required fees are collected. To ensure that
these problems do not continue to impact the program and the
Department, ADEQ needs to make necessary data corrections
and establish controls for the data systems it is currently devel-oping
or upgrading.
Basic Information About APP
Workload and Processing Times
Is Unavailable, Inaccurate
Although the database for tracking aquifer protection permits
has the capability of capturing most of the data necessary to
monitor permit processing activities, the data itself is commonly
unavailable or inaccurate. The database, officially known as the
Water Permits and Certifications Tracking Database, can capture
information about facilities, owners, and the types of permits
issued, and it is designed to enable management and staff to
check the status of a permit in process and determine what addi-tional
steps still need to be completed. However, staff often fail to
enter key information into the database, and when they do, the
information entered is often erroneous. These problems have
resulted in the use of a separate informal system to track infor-mation
about overall processing times, but some of the same
problems plague this informal system as well.
Critical database informa-tion
is often missing or
erroneous.
Finding III APP Program
20
OFFICE OF THE AUDITOR GENERAL
Basic information about the program is not readily available—
Critical information needed to determine such basic things as the
number of permits issued or in process, the amount of time it
takes to process them, and the status of individual permits is not
regularly recorded in the database. For example, the database
identifies 237 individual aquifer protection plans issued or in
process, while other data sources indicate that there are as many
as 533.
Several critical dates are not regularly recorded. Auditor General
staff reviewed computerized records for a random sample of 63
issued aquifer protection permits and found that the database
did not contain:
n The date the application was received for 22 percent of the
permits,
n The date the permit was issued for 29 percent, and
n Other dates necessary to track major milestones in the permit
process, such as reviews to determine whether the applica-tion
was complete and whether it appropriately demon-strated
that the applicant met all requirements for a permit.
These and other critical dates were recorded only 17 to 33
percent of the time.
Critical information is often erroneous—The limited informa-tion
that is available is often incorrect. When documentation
from the random sample of 63 files was compared to database
entries, the database was found to contain numerous errors.
Specifically, the database indicated an incorrect date for applica-tion
receipt 43 percent of the time. The permit issue date was also
incorrect nearly 7 percent of the time.
Database problems lead to alternative tracking system—Be-cause
of the database’s unreliability, Water Permits Section staff
use separate spreadsheets to track information about aquifer
protection permits; however, the data in this informal system is
also often incorrect. A comparison of documentation from the
random sample of 63 files with the spreadsheet containing in-formation
about issued permits showed that the spreadsheet did
not contain the correct date the application was received nearly
50 percent of the time. It also did not contain the correct date that
Finding III APP Program
21
OFFICE OF THE AUDITOR GENERAL
the permit was issued about 5 percent of the time. This secon-dary
tracking system, which still does not contain accurate data,
creates additional work for staff and would not be necessary if
ADEQ’s formal data tracking system were appropriately main-tained.
Missing Data Affects
Ability to Manage Program
Because critical information is not readily available, ADEQ can-not
effectively manage the APP program. Management difficul-ties
include failing to ensure that processing times are met, being
unable to identify where bottlenecks are occurring so that they
can be fixed, and possibly not collecting fees from some permit
holders.
Management has failed to ensure that staff meet permit proc-essing
deadlines—Since 1989, management has been responsible
for ensuring that staff meet processing deadlines established in
ADEQ’s administrative rules. However, management has not
required staff to record the information needed to allow man-agement
to monitor progress toward issuing permits. The dead-lines
include such requirements as reviewing an application for
completeness within 30 days, issuing a letter of intent to permit a
facility within 90 days of receiving the application, and issuing
the permit within 30 days of the date the public comment period
ends. Although ADEQ’s own administrative rule did not set any
penalties for ignoring the deadlines, recent legislation sets penal-ties
if processing deadlines are not met. Thus, effective tracking
becomes all the more critical.
Bottlenecks cannot be easily identified and eliminated—Incom-plete
and incorrect data limits management’s ability to determine
why permit processing delays occur and to correct the problems
that are within ADEQ’s control. It has taken several years for
ADEQ to issue some permits, but management cannot easily use
the database to determine whether processing delays are the
fault of the applicant or ADEQ. As a result, making such deter-minations
requires reviewing the files and, based on correspon-dence,
manually calculating the time that ADEQ was responsible
for the permit versus the time it was outside of ADEQ’s control.
Finding III APP Program
22
OFFICE OF THE AUDITOR GENERAL
Poor data management can impact fee collections—Because the
information in the database is incomplete, annual registration
fees may not be collected from some facilities. Certain types of
facilities, such as wastewater treatment plants, must pay annual
registration fees ranging from $25 to $5,000 based on the amount
of pollutants they discharge per day. However, the billing list is
generated from the formal tracking database, which is an incom-plete
source of information about issued permits. For example,
when Auditor General staff compared the information in the
database to the information recorded in informal spreadsheets,
the informal spreadsheets contained at least 40 permitted facili-ties
that were not listed in the database.
Efforts Needed to Prevent
Future Data Problems
The passage of recent legislation penalizing slow permit proc-essing,
combined with the need to correct possible Y2K prob-lems,
have recently led ADEQ to develop new and upgraded
databases. Currently, ADEQ is implementing a newly developed
department-wide tracking database to monitor the time it takes
to issue a wide variety of permits and licenses. At the same time,
it is also beginning work on upgrading the existing Water Per-mits
and Certifications Tracking Database, which is still needed
to provide historical information and to track information that
will not be recorded in the department-wide system. Given the
problems described above, ADEQ needs to take steps to ensure
that these systems produce useful and accurate information.
Department-wide database was recently developed—Legislation
effective in 1999 requires ADEQ and other state agencies to write
rules establishing time frames for issuing licenses and permits.
The statute also imposes financial penalties for not meeting these
deadlines. In ADEQ’s case, beginning August 14, 1999, penalties
will be assessed if it does not meet processing deadlines for some
489 different categories of permits and licenses, including aquifer
protection permits. Consequently, ADEQ has established a de-partment-
wide database to track compliance. This system,
known as the Licensing Time Frame Database, was piloted be-tween
January and August 1999 to ensure that it accurately cap-tured
the required information. Errors in the existing Water
Quality Permits and Certifications Tracking Database should not
Accurate and complete
information is critical since
ADEQ now faces financial
penalties for slow permit
processing.
Finding III APP Program
23
OFFICE OF THE AUDITOR GENERAL
impact the new system because data from the existing system
will not be added to the new one.
Other database upgrades underway—Because the Licensing
Timeframe Database is not designed to track all necessary permit
information, such as day-to-day activities and permit provisions,
work was recently begun to upgrade the Water Permits and
Certifications Tracking Database as well. The upgrade will make
the database Y2K compliant so that historical data is preserved.
The upgrade also involves converting the database to a Win-dows
format so that it is easier to use and compatible with other
department databases. As part of this process, a project team has
begun meeting with staff to determine what other database
changes may be necessary or useful. The project is in the early
stages, and necessary plans for cleaning up existing data and for
improving controls over data entry have not yet been estab-lished.
Steps are needed to protect data integrity—ADEQ needs to take
steps to ensure that the same problems currently plaguing the
existing tracking systems are not perpetuated, either in the new
department-wide database or in the upgrades to the existing
database. For both systems, ADEQ needs to obtain management
reports that would identify whether staff are actually entering
information and enable the Department to track progress toward
issuing permits. It also needs to establish procedures for verify-ing
data accuracy in both systems and for cleaning up existing
data in the Water Permits and Certifications Database.
Finding III APP Program
24
OFFICE OF THE AUDITOR GENERAL
Recommendations
ADEQ should take the following steps to ensure that data in its
databases is accurate and complete enough to manage the Aqui-fer
Protection Permit Program:
1. For the Water Permits and Certification Tracking Database,
developing and implementing a plan for cleaning up infor-mation
already entered into the database and a process for
monitoring and verifying the accuracy and completeness of
information entered in the future.
2. For the Licensing Timeframe Database, developing and util-izing
management reports to determine whether staff are
entering complete data in a timely manner; and developing
procedures for verifying the accuracy of this data.
25
OFFICE OF THE AUDITOR GENERAL
FINDING IV ADEQ NEEDS TO TAKE
APPROPRIATE STEPS TO HELP
ENSURE APP PROGRAM
IS ADEQUATELY FUNDED
ADEQ has taken an inappropriate action to minimize funding
problems in its Water Permits Section, which is responsible for
issuing aquifer protection permits. State law requires ADEQ to
set fees that are reasonably related to the cost of processing per-mits,
but it also establishes a maximum amount the applicants
can be required to pay. Anticipating a funding shortfall, ADEQ
solicited additional permit processing monies directly from some
aquifer protection permit applicants above the amount estab-lished
in statute. Although state law does not preclude ADEQ
from seeking additional fees to cover its costs, such agreements
have the appearance of compromising ADEQ’s independence
and could result in inequitable treatment of applicants and per-mit
holders. To avoid appearing to compromise its independ-ence
by soliciting additional monies from businesses that the
Department regulates, ADEQ should pursue appropriate means
of ensuring that the APP program is adequately funded.
Department Sought Additional
Monies from Some Applicants
Under state law, ADEQ is limited in the amount it can charge to
process an aquifer protection permit. Although statute requires
ADEQ to set fees that are reasonable given the Department’s
costs to process aquifer protection permits, it also caps the
amount that ADEQ can charge. The limit is set at $16,000 per
individual permit and $25,000 per site with multiple permits.
ADEQ’s rules establish a charge of $49 per hour for the time it
spends on these permits. However, because some applications
may be difficult and time-consuming to review, the maximum
charges may be reached before the permits are issued. Once the
fee cap is reached, ADEQ cannot require applicants to pay more
for work it performs in connection with permits.
Statutes cap the amount
ADEQ can charge.
Finding IV APP Program
26
OFFICE OF THE AUDITOR GENERAL
In fiscal year 1998, the Department anticipated a funding short-fall
in its Water Permits Section and the fee caps were thought to
be at least partially responsible. One means the Department used
to attempt to resolve the problem was soliciting additional mon-ies
directly from some APP applicants. At least two applicants
have since signed waiver agreements to pay fees in excess of the
fee cap. Given ADEQ’s regulatory role with regard to these ap-plicants,
such funding arrangements do not appear appropriate.
ADEQ asked some applicants to voluntarily pay more than
required—At the end of fiscal year 1998, ADEQ sent letters to
approximately 18 mines indicating that fees were not sufficient
to pay the salaries of mining permit writers and that staff layoffs
would further delay permit processing unless the shortfall was
addressed. These mines were selected because ADEQ staff
thought that their applications had reached the fee cap. The letter
proposed that the affected mines voluntarily agree to pay any
costs ADEQ incurred in excess of the fee caps. It also noted that
ADEQ had sought a one-time donation from the mines in Janu-ary
1998 but had received no response.
According to the letter, if the mine agreed to pay the excess costs,
the permit application could be expedited since it would be
worked on during staff’s “billable” time. At the time the letter
was written, management had directed staff to maximize the
amount of time spent working on permits that had not yet
reached the fee cap to generate “billable hours.” Management’s
budget goal is for 62 percent of staff time to be billable for each
pay period. Generating these billable hours came first: staff were
not to work on applications for those facilities considered to be
already at the fee cap until they had reached their quota of bill-able
hours.
Two facilities have agreed to pay excess costs—Although no
applicants directly responded to the letter, two have signed an
alternative fee cap waiver agreement that was developed by
ADEQ and the Arizona Mining Association (AMA). One appli-cant
has agreed to pay up to $147,000 over the fee cap, and the
other up to $14,700 over the cap. These dollar amounts are based
on ADEQ’s estimates of the additional time needed to issue these
permits. As part of the agreements, ADEQ is required to estab-lish
a work plan outlining tasks to be completed and an accom-panying
time schedule. The applicants can terminate the agree-
ADEQ suggested that
applications could be expe-dited
if the mines paid
additional monies.
Finding IV APP Program
27
OFFICE OF THE AUDITOR GENERAL
ments at any time and receive reimbursement if ADEQ fails to
perform in accordance with the work plan and schedule.
The AMA indicated that one reason it chose to participate in
developing the agreement was because the agreement could
enable both ADEQ and the AMA to obtain more reliable infor-mation
about the actual time and costs required to issue an aqui-fer
protection permit. According an AMA representative, there is
concern about whether the Department’s records are accurate
enough to determine the true cost of issuing these permits. The
AMA representative said the industry feared ADEQ would at-tempt
to change the fee cap without accurate information. By
contrast, the waiver requires ADEQ to outline and commit to a
work plan, which the AMA felt would provide better informa-tion
about the cost of issuing the permits.
Agreements do not appear appropriate given ADEQ’s regulatory
role—Although not illegal, the agreements appear inappropriate
given ADEQ’s regulatory relationship with these permit appli-cants.
By receiving additional monies from some applicants,
ADEQ gives the appearance of compromising its independence
and raises questions about its ability to make impartial regula-tory
decisions. In fact, an AMA representative indicated that
another reason that the AMA chose to work with ADEQ on the
fee waiver was that it wanted to establish a client/consultant
type of relationship with the Department.
ADEQ Should Use More
Appropriate Means of
Covering Its Costs
Rather than soliciting voluntary contributions from businesses
that the Department is responsible for regulating, ADEQ should
pursue other means of ensuring that the program is adequately
funded. Specifically, ADEQ should work to change internal
practices that may adversely impact its revenue flow. In addi-tion,
ADEQ could seek statutory changes to the fee caps, if neces-sary,
to enable it to recover more of its costs for issuing permits.
Changes to some ADEQ practices could lessen the likelihood of
shortfalls—ADEQ needs to change some of its practices that
may contribute to irregular revenues as well as funding short-
ADEQ gives the appear-ance
of compromising its
independence by receiving
additional monies from
some permit applicants.
Finding IV APP Program
28
OFFICE OF THE AUDITOR GENERAL
falls. ADEQ could change its process for billing permit appli-cants
and also update its budgeting assumptions:
n Billing process delays payment for work performed—
ADEQ charges an initial fee to begin processing an aquifer
protection permit, but it does not normally bill for any
additional processing costs until the permit is issued. One
reason that applicants are not billed throughout the process is
that deficiencies in the Department’s accounting system force
staff to manually calculate fees owed for permit processing.
Because of this, there is not an efficient way to begin billing as
soon as permit processing fees exceed the initial application
fee. Although the delay does not affect the total amount
collected, it does affect cash flow since the Department may
wait months or even years to recover its costs.
n Budget assumptions do not accurately reflect costs—
ADEQ also needs to reassess its current budgeting assump-tions
to ensure that it either earns enough through fees or re-quests
sufficient General Fund appropriations to cover pro-gram
costs. Currently, the Water Permits Section operates
under the assumption that 62 percent of staff time needs to be
devoted to activities that are “billable,” such as processing
permits that have not yet reached the fee cap. The figure of 62
percent of “billable” staff time stems from a 1995 study by
Arthur Andersen & Co., SC. However, a number of assump-tions
made in this study are no longer true. First, activities
that the study assumed were billable, including preapplica-tion
meetings and travel, currently are not billable according
to the Department’s Administrative Rules. The study also did
not account for the time spent processing permits for state
agencies, which are statutorily exempt from paying fees for
permits obtained from ADEQ. Finally, salaries and other
program expenses have risen since the study was performed.
In revising its budgeting assumption, ADEQ should consider
such things as whether it should modify its rules to allow it to
charge for additional activities, and whether the hourly rate
should be increased to reflect current salaries and related ex-penses.
Once an accurate productive-time budget assump-tion
is developed, ADEQ needs to assess actual staff produc-tivity
and develop productivity standards. Currently, profes-sional
staff who are responsible for reviewing aquifer protec-
Finding IV APP Program
29
OFFICE OF THE AUDITOR GENERAL
tion permit applications and processing permits are not held
to productivity standards. Without such standards, it is diffi-cult
to accurately budget, evaluate staff, and ensure that
permits are issued within reasonable time frames.
Program could seek a statutory change—In addition, because
statutory restrictions on recoverable costs can contribute to
funding shortfalls, ADEQ could either seek to modify these re-strictions
or seek additional General Fund monies to support the
program. To do so, ADEQ would first need to identify reason-able
and actual costs for permitting complex facilities, such as
mines, that may require a long review time and/or multiple
permits. Then, if necessary, it could develop appropriate recom-mendations
to the Legislature for changing the statutory fee cap.
Finding IV APP Program
30
OFFICE OF THE AUDITOR GENERAL
Recommendations
ADEQ needs to use more appropriate means for ensuring ade-quate
funding for its Water Permits Section, which includes the
APP program, by:
1. Billing facilities for work done throughout the permit process
once the total charge exceeds the initial application fee col-lected;
2. Revising its budgeting assumptions to better reflect the actual
costs of operating the Water Permits Section. As part of this
process, the types of recoverable charges as well as the hourly
fee rate should be reassessed and ADEQ should modify its
administrative rules accordingly;
3. Establishing productivity standards for professional staff
who are responsible for issuing permits and monitoring their
productivity; and,
4. Identifying reasonable and actual costs for permitting facili-ties
that may require long review time, multiple permits,
and/or several potential modifications to permits in the fu-ture
and, if necessary, develop recommendations to the Leg-islature
for changing statutory fee caps.
31
OFFICE OF THE AUDITOR GENERAL
WATER QUALITY ASSURANCE
REVOLVING FUND PROGRAM
32
OFFICE OF THE AUDITOR GENERAL
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33
OFFICE OF THE AUDITOR GENERAL
1 The Federal Superfund was created by the Comprehensive Envi-ronmental
Response Compensation and Liability Act.
INTRODUCTION AND BACKGROUND
Years of improper handling and disposal of hazardous wastes
have contaminated the soil and groundwater in various locations
throughout Arizona. These contaminants have come from land-fills,
mines, and many other industrial and commercial opera-tions
ranging from semiconductor manufacturing to dry clean-ing.
To help address contamination cleanup nationwide, Con-gress
created the Federal Superfund in 1980.1 Because the Federal
Superfund lacks the resources to clean up all contaminated sites,
Arizona and several other states have created their own state
superfunds. Arizona’s superfund, known as the Water Quality
Assurance Revolving Fund (WQARF), was established in 1986.
Currently, the WQARF program is working to facilitate cleanup
of 27 sites in Arizona. As shown in Figure 1 (see pages 34 and
35), most of these WQARF registry sites are located in the metro
Phoenix and Tucson areas. WQARF staff also monitors the vol-untary
cleanup efforts of owners/operators at an additional 13
sites. WQARF’s mission is:
To protect the public health and the environment and restore
natural resources by assessing and investigating sites, ensuring
cleanup of sites that have hazardous resource contamination of
the soil and/or water and recovering the Arizona Department of
Environmental Quality’s costs from responsible parties.
WQARF investigation and cost-recovery process—The WQARF
program involves a multi-step process for cleaning up contami-nated
sites. As shown in Figure 2 (see page 36), there are six ma-jor
steps, many of which may run concurrently.
Introduction and Background WQARF Program
34
OFFICE OF THE AUDITOR GENERAL
Figure 1
Designated Contamination Sites
WQARF Arizona Water Quality Assurance Revolving Fund program designated sites.
DOD U.S. Department of Defense owned or operated sites.
NPL National Priorities List sites that the Federal Superfund oversees.
NPL/DOD National Priorities List sites that are also Department of Defense bases or facilities.
Source: Obtained from Arizona Department of Environmental Quality website:
www.adeq.state.az.us/waste/sps
Arizona
Introduction and Background WQARF Program
35
OFFICE OF THE AUDITOR GENERAL
Phoenix Area
Tucson Area
Note: West Central Phoenix is
five separate WQARF
sites.
Introduction and Background WQARF Program
36
OFFICE OF THE AUDITOR GENERAL
Figure 2
Arizona Department of Environmental Quality
Restructured WQARF Process for Cleaning Up Contaminated Sites1
And Current Status of Sites in Process
As of August 15, 1999
1 Under the process, some steps may be occurring simultaneously.
Source: Auditor analysis of information obtained from ADEQ.
Assessing Sites for
Potential Cleanup
n ADEQ investigates sites for potential placement on
WQARF registry of sites designated for cleanup.
n 27 sites are currently on registry, with approxi-mately
80 others under review.
Obtaining
Community Input
n ADEQ must notify individuals in areas affected by
contamination and form community advisory
boards for each community.
n 2 sites have advisory boards.
n ADEQ contracts with environmental experts to
determine the extent of contamination and identify
clean-up alternatives.
n ADEQ selects the most appropriate cleanup meth-ods.
n 16 sites are in this process.
Investigating
Contamination and
Identifying
Clean-Up Method
Identifying
Parties Responsible
n ADEQ must identify all parties that contributed to a
site’s contamination.
n This step is finished at 1 site (parties identified were
unable to pay) and underway at 10 others.
Allocating
Clean-Up Costs
n ADEQ allocates costs among responsible parties.
n If parties cannot pay their costs, DEQ determines an
“orphan share” to be paid from the Fund.
n ADEQ plans to complete cost allocation for one site
by the end of 1999.
Cleaning Up
the Site
n Once the steps above are done, cleanup can begin.
n Sites posing an immediate threat can begin sooner.
n 1 site involving a threat to Payson’s drinking water
is in this step of the process.
n Clean-up may take up to 30 years or longer.
Introduction and Background WQARF Program
37
OFFICE OF THE AUDITOR GENERAL
Program funding—To ensure sufficient resources were available
to investigate responsible parties and to pay for “orphan shares,”
WQARF was statutorily guaranteed $18 million annually begin-ning
in fiscal year 1998. For fiscal year 1998, a majority of the
monies for the program were appropriated from the General
Fund. However, starting July 1, 1999, A.R.S. §49-282(B) replaced
these General Fund appropriations by allowing WQARF to re-ceive
up to $15 million from corporate income taxes annually. As
shown in Table 1 (see page 38), other Fund revenues are received
from fines, water use taxes, and various license and registration
fees. These other revenues total approximately $3 million each
year.
Introduction and Background WQARF Program
38
OFFICE OF THE AUDITOR GENERAL
Table 1
Arizona Department of Environmental Quality
Water Quality Assurance Revolving Fund
Statement of Revenues, Expenditures, and Changes in Fund Balance
Years Ended June 30, 1997, 1998, and 1999
(Unaudited)
1997 1998 1999
Revenues:
State General Fund appropriations 1 $1,705,000 $14,523,300 $14,523,300
Fines and forfeits 2 2,144,284 1,942,163 3,305,261
Water use taxes 3 1,909,981 1,891,072 1,957,725
Charges for services 4 1,172,452 1,336,345 1,681,409
Interest on investments 71,190 72,687 629,329 5
Licenses, fees, and permits 25,687 3,145
Total revenues 7,028,594 19,765,567 22,100,169
Expenditures:
Personal services 1,532,298 1,733,899 2,117,979
Employee related 286,464 319,831 380,223
Professional and outside services 6 3,624,151 5,839,457 8,789,666
Travel, in-state 68,078 51,326 53,885
Travel, out-of-state 7,044 17,787 20,062
Aid to organizations 15,226
Other operating 146,969 264,861 309,511
Capital outlay 104,415 65,821
Allocated costs 7 816,773 1,084,476 1,234,511
Total expenditures 6,586,192 9,377,458 12,921,063
Excess of revenues over expenditures 442,402 10,388,109 9,179,106
Net operating transfers in (out) 8 24,588 (800,000) (800,000)
Excess of revenues and transfers in over expenditures and transfers out 466,990 9,588,109 8,379,106
Fund balance, beginning of year 7,444,280 7,911,270 17,499,379
Fund balance, end of year $7,911,270 $17,499,379 $25,878,485 9
1 Includes an increase of $12.7 million in 1998 and to pay for personnel, legal support, and costs associated with searching for
responsible parties and to contract for cleanup at priority sites where no responsible party could be found.
2 Remedial action costs recovered from responsible parties.
3 Assessed on businesses operating municipal water delivery systems in accordance with A.R.S. §42-5302.
4 Includes fees for prospective purchaser agreements, water quality assurances, fertilizer licenses, and manifest resubmittals, and
for hazardous waste facility, hazardous waste resource recovery facility, industrial discharge, and pesticide registrations.
5 Since the Department received additional State General Fund appropriations for priority site cleanup in 1998, the monies available
for investing have increased nearly $18 million. Consequently, investment earnings increased significantly between 1998 and 1999.
6 Includes approximately $1.3 million, $3.9 million, and $6.1 million expended for priority site cleanup in 1997, 1998, and 1999,
respectively.
7 Amount is the portion of Department-wide overhead expenditures allocated to the Water Quality Assurance Revolving Fund,
such as administrative personnel, rent, general accounting, telecommunications systems, and risk management costs.
8 Beginning in 1998, A.R.S. §49-282 requires the Department to transfer $800,000 from the Water Quality Assurance Revolving Fund
to the Arizona Water Quality Fund administered by the Arizona Department of Water Resources.
9 Includes $2.6 million reserved for a long-term loan to the Tucson Regional Airport, and the remaining $23.3 million designated
for priority site cleanup expenditures and program operating expenditures.
Source: The Arizona Financial Information System Revenues and Expenditures by Fund, Program, Organization, and Object report and
Trial Balance by Fund report; and State of Arizona Appropriations Report for the years ended June 30, 1997, 1998, and 1999.
39
OFFICE OF THE AUDITOR GENERAL
FINDING I CHANGE IN LIABILITY APPROACH
PRESENTS UNIQUE CHALLENGES
TO WQARF PROGRAM
The WQARF program is still in the process of adjusting to a sig-nificant
restructuring made by the Legislature in 1997. Under
this restructuring, WQARF can no longer identify a single party
who contributed to pollution at a site and hold that party re-sponsible.
It must now use its best efforts to identify all contrib-uting
parties, allocate responsibility proportionately among
them, and determine each party’s ability to pay. Although the
program is now considered more equitable, its implementation
poses challenges for WQARF that are not shared by the Federal
Superfund and most other states. Because Arizona’s program is
new, it is still too early to assess the long-term effect of these
changes.
WQARF Restructured in 1997
In 1997, WQARF was restructured to create a more equitable and
workable state superfund. Prior to 1997, WQARF’s joint liability
standard was largely viewed as inequitable by the regulated
community. Under joint liability, WQARF could hold a single
party responsible for all cleanup costs at a site, even though
multiple parties may have contributed to the contamination. This
usually meant WQARF would seek to recover cleanup costs
from only the parties that were the largest and most obviously
able to pay, leaving these parties to recover their cleanup costs
from other responsible parties. It was this aspect of joint liability,
which shifts the burden of investigating and proving liability
from the State to the first-identified parties, that drew the most
criticism.
The restructuring efforts also resulted from concerns about the
lack of dedicated funding. Before fiscal year 1998, revenues
available to the program were inconsistent from year to year. For
example, in fiscal year 1994, no General Fund monies were ap-propriated
for WQARF cleanup activities. In fiscal year 1995,
Restructuring increased
WQARF’s responsibili-ties
and funding.
Finding I WQARF Program
40
OFFICE OF THE AUDITOR GENERAL
General Fund appropriations were approximately $900,000; and
in fiscal year 1996 they totaled approximately $1.5 million. These
inconsistencies in funding hampered cleanup efforts because the
WQARF program lacked the resources necessary to begin
cleaning up contaminated sites prior to determining whether
cost recovery was possible.
The 1997 changes were designed to address both issues. The
restructured WQARF program now operates under a different
liability standard, described in more detail below, and receives
annual dedicated funding of $18 million.
Proportional Liability Poses
New Challenges to WQARF
The switch to a new liability standard, called proportional liabil-ity,
places new challenges on ADEQ. Instead of holding one
party responsible for a site’s entire cleanup cost, ADEQ must
conduct comprehensive historical searches to identify all respon-sible
parties. ADEQ must then determine each party’s propor-tional
share of cleanup costs, and pay the shares of those parties
who are no longer financially viable.
ADEQ must identify all responsible parties—The change to
proportional liability has substantially increased ADEQ’s duties
for investigating parties potentially responsible for site contami-nation.
A.R.S. §49-287.02 requires ADEQ to use its “best efforts”
to identify all persons who may be responsible, regardless of
when the contamination occurred. Because of the “best efforts”
requirement, ADEQ must identify hundreds of potentially re-sponsible
owners and operators of contaminated property,
searching back to when the property was undeveloped wilder-ness.
ADEQ must do this regardless of the parties’ financial vi-ability
or continued existence. In one case, this meant researching
back to pre-statehood times to determine ownership.
ADEQ must proportionally allocate responsibility—Once all
responsible parties are identified, and a cleanup remedy is se-lected,
ADEQ faces the additional challenge of allocating shares
of cleanup costs. For example, if ADEQ determined a party was
responsible for 40 percent of a site’s contamination, ADEQ
would hold that party responsible for 40 percent of cleanup
There may be hundreds of
potentially responsible
parties.
Finding I WQARF Program
41
OFFICE OF THE AUDITOR GENERAL
Landfills—Determining re-sponsible
parties at landfills is
very difficult. Prior to federal
regulations in 1980, industries
dumping hazardous materials
in municipal landfills did not
keep records of the materials,
or the quantities dumped.
Co-mingled Plumes—Several
hundred parties may have
contributed to contamination
at one co-mingled plume in
central Phoenix.
costs. Determining the amount of contamination each party
caused could be very difficult, and representatives from the EPA
stated that it may be impossible at some sites, such as landfills or
sites where multiple contamination plumes run together.
WQARF’s share of cleanup costs could be
substantial—Even after ADEQ completes
the investigations and allocation,
WQARF’s share of cleanup costs could be
substantial. According to ADEQ, for the
$18 million annual funding to be
adequate, WQARF’s share of cleanup
costs must not exceed 35 percent.
However, when responsible parties
cooperate and agree to the allocation,
statute guarantees a 25 percent discount,
leaving little money for “orphan shares,”
those portions of cleanup costs assigned
to parties that no longer exist or are
unable to pay, and must therefore be paid
by WQARF. Parties may be unable to pay
for various reasons. Contamination at some WQARF sites oc-curred
in the 1940s or earlier, and many parties responsible for
such contamination have been defunct or deceased for several
years. Others still exist but may be unable to pay their full share
or may become financially unviable during the life of the cleanup
project. Projects can last for 30 years or more and cost tens of
millions of dollars. So far, ADEQ estimates that cleanup at 10 of
the 27 registry sites will be completely or significantly funded by
WQARF.
Additional Time and
Resources Required
Although the restructured investigation and allocation processes
have helped resolve inequities, these additional requirements are
time-consuming and may contribute to further cleanup delays
and increased costs. In particular, searches for potentially re-sponsible
parties can be very time-consuming and difficult. Ad-ditionally,
proportional allocations may also increase time and
costs, delay cleanup, and may raise new equity questions from
small businesses, according to a study begun in 1995 by the En-
Finding I WQARF Program
42
OFFICE OF THE AUDITOR GENERAL
vironmental Protection Agency, which administers the Super-fund
at the federal level. To expedite searches and allocations,
ADEQ hired more full-time investigators. It also has hired a
contractor to conduct the investigation and allocation phases of
the process for one site.
Delays caused by lengthy investigations allow plumes to
spread—Lengthy searches for responsible parties may further
delay cleanup efforts and increase the costs, as untreated con-tamination
continually leaches into previously uncontaminated
soil and groundwater. Environmental experts have stated that
investigating a single party may take 18 months or longer and
cost thousands of dollars. Although an investigator can research
between 5 and 10 parties at once, some sites have several hun-dred
parties to investigate. One site investigation began with as
many as 1,000 potentially responsible parties. ADEQ estimates
that the investigation at that site could take as long as 10 years,
and that a plume of contamination already 12 miles long could
spread another half mile during that time.
Historically, searching for responsible parties has been difficult
and time-consuming for two main reasons.
n First, witness interviews in historical searches are difficult as
witnesses may have moved or are deceased. Many may have
forgotten relevant details, and some may also feel loyalty to
past employers and be hesitant to reveal information.
n Second, many records are not available for businesses that
no longer exist, and businesses still in operation may rou-tinely
purge documents after a few years. Other records may
be destroyed if a business suspects it may become the subject
of a search. Further, some types of records were never even
kept. For example, hazardous waste records were not re-quired
in Arizona prior to 1984.
EPA studied proportional liability—Although the EPA operates
under joint liability, it did study proportional liability in a pilot
study at nine federal Superfund sites and encountered some of
the same difficulties Arizona faces. Specifically, the EPA found
The investigation at one
site could take ten years.
Finding I WQARF Program
43
OFFICE OF THE AUDITOR GENERAL
that the allocation process was lengthy, expensive, and delayed
the progress of site cleanup. Additionally, several smaller busi-nesses
felt the process was neither fair nor cost-effective.
n Difficult and time-consuming allocations—The propor-tional
allocation of cleanup costs took much longer than ex-pected
because any party could undermine the entire process
by treating the allocation as litigation. At several sites, parties
made numerous requests for information, and requested
depositions. There were also instances where nearly all par-ties
sought settlement, but a single party insisted that the
EPA complete the allocation. According to the EPA, the allo-cation
process may increase, not decrease, costs for all parties.
n Delayed cleanup—The time needed for investigations and
the allocation process hindered cleanup progress because
parties wanted to know their share of cleanup costs before
they would commit to performing the work.
n Some equity issues persisted—While several parties felt
their allocation was fair considering the available informa-tion,
others felt their share was not fair because major corpo-rations
with greater resources were better able to influence
the allocation. Additionally, several small businesses said
that the costs of protecting their interests in the allocation
process may actually be higher than litigation.
ADEQ’s efforts to improve search progress—Little progress was
made in responsible party searches prior to 1997, but with its
increased funding, ADEQ has taken steps to move the process
forward. ADEQ increased investigator salaries, which made
investigators easier to hire and retain. Since May 1999, ADEQ
has had four full-time investigators. ADEQ also has an agree-ment
with the Arizona Attorney General’s Office, which has
hired three full-time investigators. Additionally, ADEQ hired a
contractor in June 1999 to identify responsible parties and allo-cate
cleanup costs to those parties for one registry site. ADEQ
hopes to complete the searches and allocation for that site by
April 2000. Depending upon this site’s outcome, ADEQ may
consider using contractors at other sites for responsible party
searches, allocations, or other specialized assistance with activi-ties
such as title searches.
Finding I WQARF Program
44
OFFICE OF THE AUDITOR GENERAL
Other States’ Liability Standards
Differ from Arizona’s
To determine if the experience of other states could provide any
insight into what ADEQ is likely to encounter as it moves
through this process, Auditor General staff examined how other
states with superfunds established liability. However, Arizona’s
standard turns out to be largely unique in the way it applies
proportional liability. Most states operate under joint liability or a
more flexible version of proportional liability. According to the
Environmental Law Institute’s 50-state study of state superfund
programs in 1998, 36 states operate under joint liability. Eleven of
those states may use proportional liability when appropriate.
Arizona is one of only five states that specify proportional liabil-ity
as its standard. Of those states, Alabama, California, and Ten-nessee
have more flexibility in their administration of propor-tional
liability.1 For example:
n Alabama attempts to limit its role to overseeing cleanup
efforts. It encourages all parties to negotiate settlements. If
necessary, Alabama would conduct a proportional allocation,
but has not had to do so. When parties are uncooperative,
Alabama refers the site to the EPA, which would pursue the
parties jointly.
n California cannot hold parties liable for contamination that
occurred prior to the program’s creation in 1982.2 This sig-nificantly
limits the number of potentially responsible parties
it must investigate. It prepares a non-binding allocation de-signed
to initiate settlements among cooperative parties. Un-cooperative
parties are pursued under joint liability. Many
states pursue parties under federal joint liability provisions
outlined in the Comprehensive Environmental Response,
1 Utah’s Superfund also specifies proportional liability as its liability stan-dard,
but it is not yet fully implemented.
2 California’s Superfund was allowed to sunset in January 1999 because
the California State Assembly could not agree on specific details of the
program’s renewal. Representatives of California’s program expect it to
be renewed with proportional liability similar to how it previously func-tioned.
Finding I WQARF Program
45
OFFICE OF THE AUDITOR GENERAL
Compensation, and Liability Act (CERCLA). A.R.S. §49-
287(B) prohibits ADEQ from pursuing parties jointly under
CERCLA.
n Tennessee facilitates settlements among responsible parties,
but allocation may be used if parties are unable to settle. A
representative of Tennessee’s Superfund said businesses pre-fer
to settle among themselves, rather than having the state
dictate an allocation to them. Tennessee also has the option to
pursue parties under joint liability.
Too Early to Judge
Full Effect of Changes
For several reasons, it is too early to determine the full effect of
the 1997 restructuring. The revised program has been in place for
a relatively short time, and not enough progress has been made
toward site cleanup to assess effectiveness. In addition, the way
ADEQ performs some steps may also change as it continues to
work with the new proportional liability standard. Since the
program was restructured, ADEQ has identified 27 sites needing
remediation and has placed them on the WQARF Site Registry.
Through the voluntary cleanup program, ADEQ staff is also
providing technical support for and monitoring of cleanup ef-forts
at an additional 13 sites. Currently, ADEQ is considering
approximately 80 other sites for potential placement on the reg-istry
and it estimates that there could be hundreds of other sites
that may eventually require investigation.
46
OFFICE OF THE AUDITOR GENERAL
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47
OFFICE OF THE AUDITOR GENERAL
UNDERGROUND
STORAGE TANK PROGRAM
48
OFFICE OF THE AUDITOR GENERAL
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49
OFFICE OF THE AUDITOR GENERAL
INTRODUCTION AND BACKGROUND
The Underground Storage Tank (UST) program was established
in 1986 to reduce the risk that leaking underground storage tanks
pose to human health and the environment through soil, surface
water, and groundwater contamination. However, unlike
WQARF, UST’s cleanup responsibilities are limited to substances
such as gasoline, aviation and diesel fuel, and petroleum solvents
that have leaked from underground storage tanks. In addition,
UST provides financial assistance to the owners/operators of
these leaking tanks through the State Assurance Fund (SAF).
Financial assistance for site cleanup is provided regardless of the
owner/operator’s ability to pay.
Cleanup process for leaking underground storage tank sites—For
an owner/operator to obtain financial assistance to investigate
and clean up a leaking underground storage tank site, a number
of steps must typically be completed. Eligible owner/operators
who have incurred cleanup costs can submit applications for
reimbursement. Owners/operators seeking ADEQ’s preap-proval
of investigative and/or cleanup work submit applications
that include site characterization plans detailing the work re-quired
to define the extent of contamination and/or work re-quired
to clean up the site. ADEQ reviews and approves the
work plans and, when money is available, sets it aside to pay for
90 percent of eligible costs.
Program funding and staffing—Since 1990, the State Assurance
Fund has paid approximately $118.6 million toward cleaning up
2,564 contaminated sites. Revenues for the Fund total approxi-mately
$28 million each year, generated mainly through a one-cent-
per-gallon tax on substances such as gasoline, which are
stored in underground tanks (see Table 2, page 50). This level of
revenue is not sufficient to pay all claims for reimbursement of
cleanup costs. At the end of fiscal year 1999, approved but un-paid
claims totaled more than $55 million.
The Fund also pays the program’s administrative costs. In fiscal
year 1999, approximately 24 percent of Fund monies ($6.73 mil-lion)
were spent on administrative costs, including salaries for
Since 1990, the SAF has
paid $118.6 million to clean
up contaminated sites.
Introduction and Background UST Program
50
OFFICE OF THE AUDITOR GENERAL
Table 2
Arizona Department of Environmental Quality
State Assurance Fund
Statement of Revenues, Expenditures, and Changes in Fund Balance
Years Ended June 30, 1997, 1998, and 1999
(Unaudited)
1997 1998 1999
Revenues:
Underground storage tank contents tax $23,061,796 $25,315,091 $26,317,605
State General Fund appropriations 1 3,000,000 1,578,000
Interest on investments 1,308,747 1,588,600 1,633,528
Other 18,288 34,571
Total revenues 27,370,543 28,499,979 27,985,704
Expenditures:
Personal services 1,811,663 1,918,330 2,398,915
Employee related 345,006 371,777 457,588
Professional and outside services 6,452,804 3,694,484 3,088,057
Travel, in-state 24,981 23,843 25,574
Travel, out-of-state 9,175 6,029 3,473
Aid to individuals and organizations 2 20,204,306 18,218,348 20,588,650
Other operating 89,053 253,253 233,777
Capital outlay 52,742
Allocated costs 3 1,001,536 1,207,842 1,406,949
Total expenditures 29,991,266 25,693,906 28,202,983
Excess of revenues over (under) expenditures (2,620,723) 2,806,073 (217,279)
Fund balance, beginning of year 35,504,947 32,884,224 35,690,297
Fund balance, end of year $32,884,224 $35,690,297 $35,473,018 4
1 Includes amounts to reimburse storage tank owners/operators for leaking underground tank cleanup costs.
2 Reimbursements for leaking underground storage tank cleanup costs to owners/operators.
3 Amount is the portion of Department-wide overhead expenditures allocated to the State Assurance Fund, such
as administrative personnel, rent, general accounting telecommunications system, and risk management costs.
4 Includes $5.4 million reserved for a long-term loan to the Regional Public Transportation Authority, and the
remaining $30.1 million designated for payments to claimants for clean-up costs and program operating expen-ditures.
Source: The Arizona Financial Information System Revenues and Expenditures by Fund, Program, Organization, and
Object report and Trial Balance by Fund report; and the State of Arizona Appropriations Report for the years
ended June 30, 1997, 1998, and 1999.
Introduction and Background UST Program
51
OFFICE OF THE AUDITOR GENERAL
most of the program’s 83 FTE. These staff review and approve
plans for cleanup, monitor cleanup efforts, and take action
against tank owners who fail to take appropriate cleanup meas-ures.
They also oversee the cleanup of sites where the tank
owner is unknown or is unwilling or incapable of leading the
cleanup effort.
52
OFFICE OF THE AUDITOR GENERAL
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53
OFFICE OF THE AUDITOR GENERAL
FINDING I CONTINUED EFFORTS NEEDED
TO ADDRESS EFFICIENCY
AND FUNDING ISSUES IN THE
UNDERGROUND STORAGE
TANK PROGRAM
The UST program has made progress in improving its perform-ance
since a 1998 Auditor General performance audit, but con-tinued
work is needed. ADEQ has become more efficient in han-dling
leaking underground storage tank cases, reducing a sub-stantial
backlog of plans for addressing sites that need cleanup.
However, improvements are still needed in the program’s com-puter
database for tracking sites. Action is also needed to address
the lack of funding available for approved cleanups. Finally,
ADEQ has recently proposed rules that would enable it to focus
limited resources on cleaning up sites that pose the greatest dan-ger
to the public; however, these rules are not expected to be in
place until May 2000.
1998 Performance Audit Identified
Concerns in Several Areas
In 1998, the Auditor General completed a performance audit of
the Underground Storage Tank program that identified a num-ber
of concerns related to program management and the pro-gram’s
future (Report No. 98-4). These concerns covered the
following areas:
n Backlog of work and insufficient management informa-tion—
At the time of the audit, the UST program had accu-mulated
a large number of site characterization reports that
were awaiting approval. These reports are critical since they
help ensure that appropriate steps will be taken to clean up
the leak. ADEQ also had a backlog of other review work.
Adding to the problem, the program’s management infor-mation
was incomplete and inaccurate.
Finding I UST Program
54
OFFICE OF THE AUDITOR GENERAL
n Need for action on funding options—ADEQ lacked suffi-cient
monies to meet all of its obligations for providing finan-cial
assistance to help clean up leaks. The audit outlined a
number of recommendations, including funding increases,
reducing the expenses the State Assurance Fund would sup-port,
terminating the Fund, and reducing administrative ex-penditures
from the Fund.
n Need for a risk-based approach to setting priorities—
ADEQ had no rules that would allow it to stretch scarce
cleanup dollars by focusing resources on those sites that pose
the greatest risk to the public and the environment.
Program Has Increased
Efficiency, but Management
Information Needs Attention
ADEQ has made progress implementing 1998 audit recommen-dations
to improve its efficiency in handling leaking under-ground
storage tank cases. According to ADEQ data, the num-ber
of site characterization reports awaiting ADEQ approval is
down from 756 in October 1997 to 124 in August 1999. Of the
124, 96 have been awaiting approval for 120 or more days. In
addition, the number of closure requests awaiting review has
declined from 900 in October 1997 to 79 in August 1999. Of these
79, 54 have been awaiting review for 120 or more days. ADEQ
also now monitors staff productivity and has developed a staff
training program and a guidance manual to help ensure that
staff provide consistent direction to owners/operators and con-sultants.
However, additional work is needed to improve the program’s
management information. The 1998 audit report found problems
with the information used to track leaking underground storage
sites and recommended that ADEQ ensure that its database
(called USTracks) is complete and accurate. Although ADEQ
initially said it would complete this process by January 1999, as
of September 1999 it indicated it had corrected 62 percent of the
data and did not know how much time would be needed to
correct the rest. The 1998 audit also recommended that the pro-gram
develop and use management reports that track case
status, backlogs, and timeliness of all process steps. While the
Finding I UST Program
55
OFFICE OF THE AUDITOR GENERAL
system has the capability of producing such reports, computer
programming has still not been completed to make the reports
easily generated and readily available to management.
Action Still Needed to Address
State Assurance Fund Problems
In 1998, the State Assurance Fund did not have sufficient monies
to pay millions of dollars in approved claims for cleanup costs.
The 1998 report analyzed several ways to address the issue: in-creasing
revenues, limiting claims, eliminating the Fund, and
finding ways to reduce administrative expenses from the Fund.
n Increasing SAF revenue—Since 1998, revenue to the State
Assurance Fund has not increased and the backlog of unpaid
claims has grown. Approved but unpaid claims totaled more
than $55 million at the end of fiscal year 1999, compared with
$48 million in October 1997. At the end of fiscal year 1999, the
Fund also had 541 pending claims requesting more than $22
million. The excise tax remains unchanged at one-cent-per-gallon
on substances stored in underground tanks. In addi-tion,
General Fund appropriations actually declined between
fiscal years 1997 and 1998 and there was no appropriation in
the 1999 fiscal year. However, the Legislature did appropri-ate
$1.8 million for the Fund for fiscal years 2000 and 2001.
n Reducing future claims—Although one statutory change
has been made since 1998 to reduce the amount the State As-surance
Fund would contribute toward cleaning up a site,
other changes that were also made may have the opposite ef-fect.
The 1998 audit recommended increasing the copayment
amounts that owners/operators must pay toward cleanup.
Since the 1998 report, A.R.S. §49-1054(A) was amended to in-crease
the owners/operators’ copayment from 10 to 50 per-cent
of cleanup costs for releases reported after June 30, 2000.1
However, amendments to A.R.S. §49-1052 require the Fund
to pay for activities that were previously ineligible for reim-bursement,
such as soil sampling, analyses and reporting ac-
1 The increased copay applies to tanks that had not been closed or up-graded
to comply with new federal standards.
Revenues have not in-creased
and the backlog of
approved but unpaid
claims is now more than
$55 million.
Finding I UST Program
56
OFFICE OF THE AUDITOR GENERAL
tivities. Additionally, other modifications made more own-ers/
operators likely to qualify for $1 million in assistance
from the State Assurance Fund rather than $500,000.
n Terminating the Fund—No action has been taken yet to
terminate the Fund. The 1998 audit reported that continuing
the State Assurance Fund was an unnecessary cost to the
State because affordable private insurance existed. The Leg-islature
has since allocated funding for a study on the extent
and type of groundwater contamination from leaking under-ground
storage tanks, and the findings could be used to help
determine the Fund’s future. One factor that may be ad-dressed
in the study is the extent of MTBE contamination.
MTBE is a gasoline additive designed to reduce air pollution.
n Reducing administrative expenses—ADEQ has taken
action to reduce its administrative costs since the previous
audit. In fiscal year 1997, administrative expenditures ac-counted
for 32.6 percent of total fund expenditures. (ADEQ
estimated that if it had been able to pay all approved claims,
administrative expenses would have been 12 percent.) To
reduce administrative costs, the Fund has assumed tasks
previously administered by a contractor, such as technical
claims reviews and the appeals process. In fiscal year 1999,
the program’s administrative costs were 24 percent, and
ADEQ estimates that its administrative costs would have
been below 10 percent if it had been able to pay all claims
that it approved that year. ADEQ will need to continue to
improve efficiency as A.R.S. §49-1051(B) requires the pro-gram
to limit its administrative costs to the greater of 21 per-cent,
or approximately $5.7 million, by July 1, 2002.
ADEQ Should Continue to
Implement Risk-Based Approach
ADEQ has not yet fully implemented a risk-based approach that
would allow it to use its limited resources to clean up leaking
underground storage tank sites posing the greatest threat to the
public, as recommended by the 1998 audit and by the EPA. At
the time of the audit, ADEQ required all reported sites to be
cleaned up to meet drinking water standards, regardless of their
threat to human health. However, by implementing a more
Administrative expenses
have declined since 1997.
Finding I UST Program
57
OFFICE OF THE AUDITOR GENERAL
Tier 1—Used as a screening device. When con-tamination
is below pre-set standards, no
cleanup is required. When contamination ex-ceeds
the standards, cleanup can be done or a
Tier 2 assessment may be performed.
Tier 2—Sites with higher contamination levels
are studied and less conservative cleanup stan-dards
are determined depending upon the extent
of contaminants, future uses of groundwater, and
effects on human health.
Tier 3—Higher-priority sites are subject to more
comprehensive evaluation and cleanup.
flexible approach, known as Risk-Based Corrective Action
(RBCA), ADEQ could determine which sites to clean up first and
allow low-risk sites to exceed allowable contamination stan-dards.
To implement this approach in Arizona, the audit rec-ommended
that ADEQ transfer innovative ideas from other
states and use outside technical resources to develop computer
software and guidance documents.
During the course of the 1998 audit, ADEQ began developing
RBCA rules. As part of the
process, ADEQ consulted
with other states, the EPA,
and other organizations to
develop a three-tiered
approach designed to more
efficiently use its cleanup
resources. A.R.S. §49-1005(F)
requires ADEQ to adopt
these rules by December 31,
1999. ADEQ has recently
proposed RBCA rules but
does not expect them to be in
place until May 2000. In
anticipation of implementing RBCA, ADEQ has purchased a
computer model to track sites through the three-tiered process
and has initiated staff training in the model.
Finding I UST Program
58
OFFICE OF THE AUDITOR GENERAL
Recommendations
1. ADEQ needs to continue its efforts to ensure that its US-Tracks
database is complete and accurate.
2. ADEQ also needs to develop and make management infor-mation
readily available to enable UST managers to track
case status, backlogs, and processing timeliness.
3. The Legislature should consider increasing the gasoline ex-cise
tax or increasing General Fund appropriations to ensure
there are sufficient revenues to pay existing claims for
cleanup costs.
4. ADEQ needs to complete rules to enable it to implement a
risk-based approach to cleanup that would stretch its scarce
resources and focus on those sites that pose the greatest dan-ger
to public health or the environment.
OFFICE OF THE AUDITOR GENERAL
Agency Response
OFFICE OF THE AUDITOR GENERAL
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AQUIFER PROTECTION PERMIT (APP) PROGRAM
FINDING I. COMPLIANCE WITH STATUTORY APP PROCESSING DEADLINES IS
DOUBTFUL
Recommendation #1. ADEQ should continue working to upgrade professional positions within
the APP program as it sees necessary.
ADEQ Response: The finding of the Auditor General is not agreed to, but the recommendation will be
implemented.
The issue of low paid technical staff positions is a longstanding one. It has been recognized by the
Legislature and Administration and, this year, in a Department of Administration “Compensation Proposal
for FY2000-FY2001,” it is addressed again. ADEQ is working, within its capability, to upgrade the
positions. Despite this problem, the Department disagrees that its ability to meet our APP processing
deadline is at risk. Through improved training, program enhancements, detailed project management, and
innovative staffing, the Department is confident that it will manage the required approximately 100 permit
actions needed each year for the next four years.
Recommendation #2. ADEQ needs to develop and implement a formal training process for staff
who process aquifer protection permits to help ensure that permits are processed efficiently and
consistently.
ADEQ Response: The finding of the Auditor General is not agreed to, but the recommendation will be
implemented.
The report suggests that the Department did nothing to improve training for its staff in the APP program,
essentially ignoring the recommendations of the 1993 program audit. This is incorrect. Many formal and
informal training efforts have been implemented notwithstanding the limited training budget which has
plagued the program for most of its lifetime. Training has been focused on two tracks: 1) technical
decision-making and 2) permitting processes. Numerous efforts have been provided to guide staff along
technical decision-making processes. One such effort is the monthly meeting of Water Permits hydrologists
which is much more than an informal mentoring effort. Each month the program hydrologists, led by the
most senior hydrologist in the Department, focus on hydrologic issues of specific projects which are
"stumping" the permit team. The group works through the problems and analyzes solutions. These monthly
meetings serve many training purposes: hydrologists continue training in methodology and analysis with
specific case studies relevant to their daily work; they explore current issues in hydrology; and discuss
consistency in presenting their findings. Additionally, the Water Permits Section has taken advantage of
several training courses offered by the Environmental Protection Agency or other outside vendors, including
"Hydrology for Non-Hydrologists" for those project officers and engineers who are not trained as
hydrologists and seminars on liner technologies and acid-mine drainage. Along the line of permitting
process training, in addition to the individual mentoring and the development of the permitting process
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flowchart, the Permits Section management also created "how to" templates for project officers to use in
areas ranging from "How to Write a Memo" to issue tracking and project management. These resources
and similar materials are compiled in the “Ready Reference” Filing System available to all staff. Specific
software has been purchased to assist with workload tracking (i.e. Microsoft Project) and formal training
has been offered to staff. The Department is developing a plan focused on skill, knowledge and abilities
(SKA). Skill is focussed on applicable law/rules, program processes and project management.
Knowledge is based upon the education/training which qualifies a person for the position along with
continuous education depending on the job requirements. Abilities include technical writing, public
speaking, team building and negotiations.
More can always be done to improve training, and a formal training program, provided adequate funding,
would certainly help. The Department accepts the recommendation that a formal training program will help
the APP program improve and plans to finalize the “SKA” outline for APP permitting staff within the next
two months. The Department does not agree that it has done nothing since 1993 to implement formal and
informal training to help staff. The Department does not agree that the lack of a formal training program
will prevent the Department from meeting the statutory requirement for issuing permits.
Recommendation #3. ADEQ management needs to develop and implement a plan for addressing
aquifer protection permits in process to ensure timely issuance of permits that are not subject to
statutory penalties.
ADEQ Response: The finding of the Auditor General is not agreed to, but the recommendation will be
implemented.
The Department does not disagree that it will need to process approximately 100 permits during each of the
next 4 ½ years to meet the 2004 deadline. We strongly disagree with the Auditor General’s calculations of
our past performance. The authorizing legislation for the APP program specifies the following permit
actions: 1) issuance of an individual permit, 2) major modification to an existing permit, and 3) clean closure
of a facility in lieu of issuing an APP. When all of these actions are counted, the correct assessment of
Department productivity in the APP program is that it issued 88 APP permit actions in FY1998 and 104
APP permit actions in FY1999. Based on that progress, with no other change, the Department would be
able to meet the anticipated number of permit actions by 2004. But as the Auditor General knows, the
Department will have its rules in place by January 1, 2001 for the Unified Water Quality Permit (UWQP)
program. Current discussions with stakeholders indicate that the UWQP rule could include as many as 20
categories of general permits, eliminating the need for an individual APP for entire classes of facilities. The
Department believes that the additional general permits will significantly reduce the number of facilities
required to obtain individual APPs.
The combination of additional general permits, decisions to deny applications (when appropriate),
implementation of permitting process efficiencies and continued staff training will provide more than enough
time to complete the required permitting prior to the deadlines.
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APP FINDING II: ADEQ HAS NOT FOCUSED AQUIFER PROTECTION PERMIT
EFFORTS ON HIGH-RISK FACILITIES
Recommendation. ADEQ needs to take prompt action to address those facilities that have failed
to respond to the Department's requests to submit APP applications, and it should initiate this
action beginning with highest-risk/highest-priority facilities.
ADEQ Response: The finding of the Auditor General is not agreed to, but the recommendation will be
implemented.
The Department disagrees with the conclusion that the Department failed to protect either public health or
the environment by somehow not working on permits for facilities posing the highest risk to groundwater.
Existing groundwater permits issued by the Department of Health Services prior to the creation of the
Department in 1986, and by ADEQ prior to the effective date of the APP program, serve to adequately
protect groundwater until the more protective APP can be issued. It is a mistake to assume that facilities
with these legacy permits are polluting our groundwater supplies while they wait for an APP permit, and
that as a result of not having the APP, public health and the environment are somehow at risk.
Groundwater Quality Protection Permits (GWQPP) as a rule require discharge limits, monitoring and
reporting. For facilities operating under a Notice of Disposal (NOD), the Department has maintained an
aggressive inspection and compliance program. In fact since 1997, the Department has entered into
approximately 50 compliance and enforcement actions for GWQPP facilities and 100 compliance and
enforcement actions for NOD facilities. These actions made up 64% of all the compliance and enforcement
actions from 1997 to the present. While we agree with the Auditor General that the APP is a more
protective and desired permit, we disagree that the Department has somehow been negligent in its duty by
requiring additional time to issue APP permits for the 1,071 existing facilities with legacy permits transferred
to the Department at its creation.
When the Legislature passed A.R.S. §49-241.D, it specifically included two factors for prioritizing the Call-
In list: the degree of risk and a workplan by the director designed to process all applications by the
appointed time. The director clearly has the authority for his/her work plan to reflect the availability of staff
expertise to accomplish both timely permitting and a comprehensive effort to process the entire list. While it
is true that new, inexperienced staff were not given high-risk facilities to work on, the high risk facilities
were processed in as expeditious a manner as staffing would allow.
As well, the Auditor General is critical that ADEQ did not refer non-responders to compliance per ADEQ
policy. The Department opted to work with facilities to encourage and coach them through the application
process. Perhaps these facilities would have been better served if the Water Permits Section has referred
them to the Water Quality Compliance Section. Regulatory reform through the Licensing Time Frames
provisions now precludes the Department from providing this level of assistance. After August 13, 1999,
existing facilities who are unable to submit a complete application according to the specified timeframes will
be automatically referred to the Water Compliance Section.
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APP FINDING III: INCOMPLETE AND INACCURATE DATA LIMITS ADEQ'S ABILITY
TO MANAGE ITS AQUIFER PROTECTION PERMIT PROGRAM
Recommendation. ADEQ should take the following steps to ensure the data in its databases is
accurate and complete enough to manage the Aquifer Protection Permit Program:
1. For the Water Permits and Certification Tracking Database, developing and implementing a
plan for cleaning up information already entered into the database and a process for monitoring
and verifying the accuracy and completeness of information entered in the future.
ADEQ Response: The finding of the Auditor General is agreed to and a different method of dealing
with the finding will be implemented.
The Department has submitted a request for funding construction of a new Permits database as a Critical
Issue in the Supplemental Budget process for FY2000-2001. If funding is received, we will proceed on a
parallel path to clean existing data while constructing a new database to ensure that when historic data is
transferred to the new application, it is accurate. If funding is not received, the Department will approach
construction of a new Permits database in smaller segments, and will focus only on new data; historic data
will not be transferred. Either method will ensure that only accurate data are contained within the new
database. Adequate controls will be included in either approach to ensure data are entered, and entered
correctly.
2. For the Licensing Timeframe Database, developing and utilizing management reports to
determine whether staff are entering complete data in a timely manner; and developing
procedures for verifying the accuracy of this data.
ADEQ Response: The finding of the Auditor General is agreed to and the audit recommendation will
be implemented.
APP FINDING IV: ADEQ NEEDS TO TAKE APPROPRIATE STEPS TO HELP ENSURE
APP PROGRAM IS ADEQUATELY FUNDED
Recommendation. ADEQ needs to use more appropriate means for ensuring adequate funding
for its Water Permits Section, which includes the APP program, by:
1. Billing facilities for work done throughout the permit process once the total charge exceeds the
initial application fee collected;
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2. Revising its budgeting assumptions to better reflect the actual costs of operating the Water
Permits Section. As part of this process, the types of recoverable charges as well as the hourly
fee rate should be reassessed and ADEQ should modify its administrative rules accordingly;
3. Establishing productivity standards for professional staff who are responsible for issuing
permits and monitoring their productivity; and,
4. Identifying reasonable and actual costs for permitting facilities that may require long review
time, multiple permits, and/or several potential modifications to permits in the future and, if
necessary, develop recommendations to the Legislature for changing statutory fee caps.
ADEQ Response: The finding of the Auditor General is not agreed to, but the recommendation will be
implemented.
The Auditor General has exaggerated the significance of the fee cap waiver. The Department has been
plagued with an inadequate fee structure for several years. In FY1998, in an attempt to balance its budget,
the Department asked the mining sector, which historically has paid less than it costs to permit its facilities,
to agree to waive statutory fee caps in order to recover more of ADEQ’s costs to permit those facilities.
While legal and initiated for good cause, the Department soon recognized, several months later, that this
request could have the appearance of being inappropriate. As a result, it stopped this action in FY1999.
As the Auditor General well knows, the Department convened a stakeholder process to revise its Fee Rule
in April 1999. Since that time, the Program has: benchmarked APP fees with other states, analyzed our
efficiencies for reasonableness, and opened a docket for a rule revision.
As of November 9, 1999, the Department is developing scenarios to show how various revisions to the
Fee Rule (increase the types of recoverable services, incremental increases in the hourly rate as well as
implementation of permitting efficiencies) would impact the funding shortfall. The Department will continue
meeting with Stakeholders to obtain feedback prior to any proposed rule changes. Based upon the current
rulemaking schedule, revisions to the Fee Rule should be proposed by April, 2000.
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WATER QUALITY ASSURANCE REVOLVING FUND (WQARF)
FINDING I. CHANGE IN LIABILITY APPROACH PRESENTS UNIQUE CHALLENGES
TO WQARF PROGRAM
ADEQ Response: The finding of the Auditor General is agreed to, and while no specific
recommendations were provided, ADEQ will continue to explore areas for
improvement.
ADEQ concurs with the report’s conclusion that it is, “too early to determine the full effect” of the 1997
changes to the Water Quality Assurance Revolving Fund (WQARF) statute. However, ADEQ does
believe “new” WQARF has brought about many positive changes to the traditional Superfund approach,
as summarized below:
C Unfair Liability Scheme: The Comprehensive Environmental Response, Compensation, and Liability
Act (CERCLA) establishes strict, joint and several liability, without regard to contribution. Prior to
1997, WQARF followed the same liability scheme, which placed the burden on an identified
responsible party to prove division of harm. Theoretically, one party could be held responsible for
100% of the costs of cleanup at a multi-party site. This led to significant and expensive litigation,
which substantially slowed the cleanups.
The new liability scheme under WQARF, one of “proportional liability”, is considered to be more
fair. Also, the Legislature provided increased funding to ADEQ for payment of “orphan shares”
(shares allocated to parties unable to pay their fair share).
C Impacts to Small Business: CERCLA and “old WQARF” have long been considered as having
adverse impacts to small businesses. New WQARF allows ADEQ to settle with small business
owners based on their ability to pay.
C Prolonged Impacts to Potentially Responsible Parties (PRPs): CERCLA and “old WQARF” have
been criticized for naming PRPs early in the process, and leaving the identified parties in “limbo” for
an extended period of time, during the remedial investigation/feasibility study. PRPs are not
formally identified in “New WQARF” until the allocation process approaches. Additionally, “New
WQARF” provides for PRP no-further action requests and options for early settlement.
C Community Involvement: Stakeholders (which includes ADEQ) felt that more and earlier input from
the community on remedy selection is needed, which is a departure from both CERCLA and “old
WQARF”. Considerable community dissent and concern often resulted in the federal and previous
state programs when the community was informed of proposed remedies very late in the process.
Extensive community involvement requirements have been built into “new WQARF”.
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C Cleanup Schedule: CERCLA and WQARF have received extensive criticism about the length of
time needed to reach a cleanup decision at sites. Stakeholders felt that protracted negotiations with
potentially responsible parties during the remedial investigation (RI) phase of projects contributed to
a drawn-out process. “New WQARF” provides increased funding for fund-lead remedial
investigations/feasibility studies, to allow site characterization and remedy decisions to progress.
Prior to 1997, WQARF funding was inadequate. RIs often took on a “piece meal” approach,
where full site characterization would take many years and be funding dependent.
C Study Areas: Prior to 1997, many WQARF sites were identified on Superfund maps as “study
areas”. This created liability and property value concerns at properties not impacted by
contamination. “New WQARF” eliminates the study area concept and requires ADEQ to identify
only the areas of known contamination as the “sites”.
C Site Listings: Under “old WQARF”, there was more than one list of WQARF sites. The Priority
List included only sites where fund-lead remedial actions were necessary. The Priority List did not
address other sites of significant contamination being addressed by working parties. A WQARF
Registry has been created under “new WQARF”, which allows all WQARF sites to be viewed and
ranked together.
C Cleanup Standards: Both CERCLA and WQARF have historically required ground water cleanups
to meet Aquifer Water Quality Standards, without regard to technical feasibility or projected
beneficial uses of an aquifer. “New WQARF” requires ADEQ to consider technical practicality
and beneficial use.
While the full effect of “new” WQARF cannot be determined at this time, progress has been made. Some of
the highlights of the WQARF Program, since the implementation of “new” WQARF, are as follows:
C Establishment of the WQARF Advisory Board and WQARF implementation teams (comprised of
ADEQ staff and stakeholders to help fashion rules and guidance) has enabled ADEQ to coordinate
more actively with the public on expectations for, and needs of, the agency. The WQARF Advisory
Board continues to meet on a monthly basis and offers the public an opportunity to receive
information, ask questions and provide comments about the Program. Stakeholder participation is
vastly improved over that of “old” WQARF (pre-1997).
C ADEQ and WQARF Program stakeholders have been working together to draft rules and guidance
documents for the new WQARF Program. The interim rule (which addresses significant elements of
WQARF, including remedy selection) is expected to be effective by May 2000.
C The creation and continuous updating of the Superfund Programs Section Web page